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Discounting the distant future: How much does model selection affect the certainty equivalent rate?

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Author Info
Phoebe Koundouri (Department of International and European Economic Studies, Athens University of Economics and Business, Greece)
Theologos Pantelidis (Department of Banking and Financial Management, University of Piraeus, Greece)
Ben Groom (Department of Economics, School of Oriental and African Studies, UK)
Ekaterini Panopoulou

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Abstract

Recent work in evaluating investments with long-term consequences has turned towards establishing a schedule of Declining Discount Rates (DDRs). Using US data we show that the employment of models that account for changes in the interest rate generating mechanism has important implications for operationalising a theory of DDRs that depends upon uncertainty. The policy implications of DDRs are then analysed in the context of climate change for the USA, where the use of a state space model can increase valuations by 150% compared to conventional constant discounting. Copyright © 2007 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/jae.937
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File URL: http://qed.econ.queensu.ca:80/jae/2007-v22.3/
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Publisher Info
Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 22 (2007)
Issue (Month): 3 ()
Pages: 641-656
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Handle: RePEc:jae:japmet:v:22:y:2007:i:3:p:641-656

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References listed on IDEAS
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.:
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  2. David Pearce & Ben Groom & Cameron Hepburn & Phoebe Koundouri, 2003. "Valuing the Future," World Economics, World Economics, Economic & Financial Publishing, PO Box 69, Henley-on-Thames, Oxfordshire, United Kingdom, RG9 1GB, vol. 4(2), pages 121-141, April. [Downloadable!]
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  12. Dieter Bräuninger, 2003. "Demographics and Pension Reforms in the Major Central and Eastern European Countries," World Economics, World Economics, Economic & Financial Publishing, PO Box 69, Henley-on-Thames, Oxfordshire, United Kingdom, RG9 1GB, vol. 4(1), pages 117-132, January. [Downloadable!]
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Cited by:
(explanations, 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.)

  1. GOLLIER Christian, 2008. "Should we discount the far-distant future at its lowest possible rate?," Working Papers 08.30.274, LERNA, University of Toulouse. [Downloadable!]
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  2. GOLLIER Christian, 2008. "Discounting with fat-tailed economic growth," Working Papers 08.19.263, LERNA, University of Toulouse. [Downloadable!]
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  3. Cameron Hepburn & Phoebe Koundouri & Ekaterini Panopoulou & Theologos Pantelidis, 2006. "Social Discounting Under Uncertainty: A cross-country comparison," The Institute for International Integration Studies Discussion Paper Series iiisdp177, IIIS. [Downloadable!]
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