Now, Later, or Never: Applying Asymmetric Discount Rates in Nuisance Remedies and Federal Regulations

Authors

Yang Wang, University of Michigan Law SchoolFollow

Abstract

Part I of this Note reviews recent literature on the need for asymmetric discount rates in cost-benefit analysis. It observes that even though scholars disagree on the precise value of the appropriate discount rate, many agree that future costs and benefits must be discounted at different rates. Part II then constructs a simple model, consisting of two activities competing for the same resource, and analyzes the consequences of asymmetric discounting under this model. This Part proposes that, to maximize the joint social utility, the resource should be time divided between the competing activities rather than permanently allocated to one or the other. Part III applies this model to nuisance suits between polluters and victims of pollution. This Part argues that, when choosing how to allocate an entitlement to valuable resources between competing parties, courts should consider time dividing the remedy instead of permanently awarding entitlement to one side or the other, as courts traditionally have done. Likewise, the two categories of rules designed to protect entitlements, property rules and liability rules, may also be alternated over time to maximize social utility. Part IV extends the model to augment the traditional economic analysis of federal environmental regulations. It identifies two perhaps unintended consequences of applying asymmetric discount rates in the cost-benefit analysis of federal regulations. First, from a pure utility maximizing point of view, many federal regulations to which asymmetric discounting is applicable should be adopted neither now nor never, but rather at some point in the future. Second, agencies should adopt progressively more stringent regulations over time in order to maintain a maximum level of social utility.

Recommended Citation

Yang Wang, Now, Later, or Never: Applying Asymmetric Discount Rates in Nuisance Remedies and Federal Regulations, 105 Mich. L. Rev. 2035 (2007).
Available at: https://repository.law.umich.edu/mlr/vol105/iss8/13