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How should the distant future be discounted when discount rates are uncertain?

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Author Info

  • Gollier, Christian
  • Weitzman, Martin L.

Abstract

The so-called "Weitzman-Gollier puzzle" is the fact that two seemingly symmetric and equally plausible ways of dealing with uncertain future discount rates appear to give diametrically opposed results. The puzzle is resolved when agents optimize their consumption plans. The long run discount rate declines over time toward its lowest possible value.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 107 (2010)
Issue (Month): 3 (June)
Pages: 350-353

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Handle: RePEc:eee:ecolet:v:107:y:2010:i:3:p:350-353

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Web page: http://www.elsevier.com/locate/ecolet

Related research

Keywords: Discount rate Term structure Climate change Cost-benefit analysis;

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References

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  1. Freeman, Mark C., 2009. "Yes, we should discount the far-distant future at its lowest possible rate: a resolution of the Weitzman-Gollier puzzle," Economics Discussion Papers 2009-42, Kiel Institute for the World Economy.
  2. Phoebe Koundouri & Theologos Pantelidis & Ben Groom & Ekaterini Panopoulou, 2007. "Discounting the distant future: How much does model selection affect the certainty equivalent rate?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(3), pages 641-656.
  3. Newell, Richard G. & Pizer, William A., 2003. "Discounting the distant future: how much do uncertain rates increase valuations?," Journal of Environmental Economics and Management, Elsevier, vol. 46(1), pages 52-71, July.
  4. 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.
  5. GOLLIER Christian, 2008. "Should we discount the far-distant future at its lowest possible rate?," LERNA Working Papers 08.30.274, LERNA, University of Toulouse.
  6. Gollier, Christian, 2003. "Maximizing the Expected Net Future Value as an Alternative Strategy to Gamma Discounting," IDEI Working Papers 213, Institut d'Économie Industrielle (IDEI), Toulouse.
  7. Wolfgang Buchholz & Jan Schumacher, 2008. "Discounting the Long-Distant Future: A Simple Explanation for the Weitzman-Gollier-Puzzle," CESifo Working Paper Series 2357, CESifo Group Munich.
  8. Martin L. Weitzman, 2001. "Gamma Discounting," American Economic Review, American Economic Association, vol. 91(1), pages 260-271, March.
  9. GOLLIER Christian, 2008. "Expected net present value, expected net future value, and the Ramsey rule," LERNA Working Papers 08.29.273, LERNA, University of Toulouse.
  10. Partha Dasgupta, 2008. "Discounting climate change," Journal of Risk and Uncertainty, Springer, vol. 37(2), pages 141-169, December.
  11. Newell, Richard G. & Pizer, William A., 2004. "Uncertain discount rates in climate policy analysis," Energy Policy, Elsevier, vol. 32(4), pages 519-529, March.
  12. Hepburn, Cameron & Groom, Ben, 2007. "Gamma discounting and expected net future value," Journal of Environmental Economics and Management, Elsevier, vol. 53(1), pages 99-109, January.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Discouting with uncertain discount rates
    by Economic Logician in Economic Logic on 2010-02-04 15:12:00

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  1. > Environmental and Natural Resource Economics > Climate economics > Discounting, equity, uncertainty
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