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Discounting and Divergence of Opinion

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  • Elyès Jouini

    ()
    (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - CNRS : UMR7534 - Université Paris Dauphine - Paris IX)

  • Jean-Michel Marin

    (INRIA Futurs - SELECT - INRIA - Université Paris Sud - Paris XI, CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique)

  • Clotilde Napp

    (CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique, DRM - Dauphine Recherches en Management - CNRS : UMR7088 - Université Paris Dauphine - Paris IX)

Abstract

The objective of this paper is to adopt a general equilibrium model and determine the socially efficient discount factor, risk free rate and discount rate when there are heterogeneous anticipations about the growth of the economy as well as heterogeneous time preference rates. Among others we tackle the following questions. Is the socially efficient discount factor an arithmetic average of the individual subjectively anticipated discount factors? More generally, can the Arrow-Debreu prices, the risk free rates, the subjectively expected socially efficient discount factors and discount rates be obtained as an average of the individual subjectively anticipated ones? Can beliefs dispersion be analyzed as a sort of additional risk or uncertainty leading to possibly lower discount rates? Is it socially efficient, when diversity of opinion is taken into account, to reduce the discount rate per year for more distant horizons? If so, what is the trajectory of the decline?

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Bibliographic Info

Paper provided by HAL in its series Post-Print with number halshs-00176636.

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Date of creation: Mar 2010
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Publication status: Published, Journal of Economic Theory, 2010, 145, 830-859
Handle: RePEc:hal:journl:halshs-00176636

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Keywords: discount rate; risk free rate;

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Citations

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Cited by:
  1. Roman Muraviev, 2013. "Market selection with learning and catching up with the Joneses," Finance and Stochastics, Springer, Springer, vol. 17(2), pages 273-304, April.
  2. Geoffrey Heal & Antony Millner, 2013. "Discounting under Disagreement," NBER Working Papers 18999, National Bureau of Economic Research, Inc.
  3. Elyès Jouini & Clotilde Napp, 2009. "Cognitive biases and the representative agent," Working Papers halshs-00488570, HAL.
  4. Jouini, Elyès & Napp, Clotilde, 2014. "How to aggregate experts' discount rates: An equilibrium approach," Economic Modelling, Elsevier, Elsevier, vol. 36(C), pages 235-243.
  5. Napp, Clotilde & Malamud, Semyon & Jouini, Elyès & Cvitanic, Jaksa, 2012. "Financial Markets Equilibrium with Heterogeneous Agents," Economics Papers from University Paris Dauphine 123456789/4724, Paris Dauphine University.
  6. Gollier, Christian, 2014. "Gamma discounters are short-termist," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 828, Institut d'Économie Industrielle (IDEI), Toulouse.
  7. Elyès Jouini & Clotilde Napp, 2010. "Unbiased Disagreement in financial markets, waves of pessimism and the risk return tradeoff," Post-Print, HAL halshs-00488481, HAL.
  8. Gierlinger, Johannes & Gollier, Christian, 2008. "Socially Efficient Discounting under Ambiguity Aversion," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 561, Institut d'Économie Industrielle (IDEI), Toulouse.
  9. Maureen L. Cropper & Mark C. Freeman & Ben Groom & William A. Pizer, 2014. "Declining Discount Rates," American Economic Review, American Economic Association, American Economic Association, vol. 104(5), pages 538-43, May.
  10. Elyès Jouini & Clotilde Napp, 2008. "Aggregation of Discount Rates: an Equilibrium Approach," Working Papers halshs-00394035, HAL.
  11. Mark C. Freeman & Ben Groom, 2013. "How certain are we about the certainty-equivalent long term social discount rate?," Grantham Research Institute on Climate Change and the Environment Working Papers, Grantham Research Institute on Climate Change and the Environment 138, Grantham Research Institute on Climate Change and the Environment.

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