AbstractBy incorporating the probability distribution directly into the analysis, this paper proposes a new theoretical approach to resolving the perennial dilemma of being uncertain about what discount rate to use in cost-benefit analysis. A numerical example is constructed from the results of a survey based on the opinions of 2,160 economists. The main finding is that even if every individual believes in a constant discount rate, the wide spread of opinion on what it should be makes the effective social discount rate decline significantly over time. Implications and ramifications of this proposed "gamma-discounting" approach are discussed.
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Bibliographic InfoArticle provided by American Economic Association in its journal American Economic Review.
Volume (Year): 91 (2001)
Issue (Month): 1 (March)
Other versions of this item:
- Martin L. Weitzman, 1998. "Gamma Discounting," Harvard Institute of Economic Research Working Papers 1843, Harvard - Institute of Economic Research.
- H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Weitzman, Martin L., 1998. "Why the Far-Distant Future Should Be Discounted at Its Lowest Possible Rate," Journal of Environmental Economics and Management, Elsevier, vol. 36(3), pages 201-208, November.
- Pizer, William A., 1999. "The optimal choice of climate change policy in the presence of uncertainty," Resource and Energy Economics, Elsevier, vol. 21(3-4), pages 255-287, August.
- Cropper, Maureen & Laibson, David, 1998. "The implications of hyperbolic discounting for project evaluation," Policy Research Working Paper Series 1943, The World Bank.
RePEc Biblio mentionsAs found on the RePEc Biblio, the curated bibliography for Economics:
- > Environmental and Natural Resource Economics > Climate economics > Discounting, equity, uncertainty
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