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Aggregation of Discount Rates: an Equilibrium Approach

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  • Elyès Jouini

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

  • Clotilde Napp

    (DRM - Dauphine Recherches en Management - CNRS : UMR7088 - Université Paris Dauphine - Paris IX)

Abstract

We address the problem of a social planner who, as in Weitzman (2001), gathers data on experts' discount rates and wants to infer the socially efficient consumption discount rate. We propose an 'equilibrium approach' and we analyse the expression and the properties of the resulting 'equilibrium discount rate'. We compare our expression for the discount rate with the different expressions that have been previously proposed in the literature. We analyse the impact of shifts in the distributions of experts discount rates. Finally, we apply our approach to Weitzman (2001)'s data to propose discount rates for public sector Cost-Benefit Analysis, in particular for the long term.

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Bibliographic Info

Paper provided by HAL in its series Working Papers with number halshs-00394035.

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Date of creation: Jul 2008
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Handle: RePEc:hal:wpaper:halshs-00394035

Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00394035/en/
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Related research

Keywords: consumption discount rate; equilibrium discount rate; experts discount rate; hyperbolic discounting; cost-benefit analysis; gamma discounting; divergence of opinion.;

References

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  1. Martin L. Weitzman, 2007. "A Review of the Stern Review on the Economics of Climate Change," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 703-724, September.
  2. William D. Nordhaus, 2007. "A Review of the Stern Review on the Economics of Climate Change," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 686-702, September.
  3. Jouini, Elyès & Napp, Clotilde & Nocetti, Diego, 2008. "Properties of the Social Discount Rate in a Benthamite Framework with Heterogeneous Degrees of Impatience," Economics Papers from University Paris Dauphine 123456789/260, Paris Dauphine University.
  4. Kenneth F. Reinschmidt, 2002. "Aggregate Social Discount Rate Derived from Individual Discount Rates," Management Science, INFORMS, vol. 48(2), pages 307-312, February.
  5. Mark Rubinstein., 1975. "The Strong Case for the Generalized Logarithmic Utility Model as the Premier Model of Financial Markets," Research Program in Finance Working Papers 34, University of California at Berkeley.
  6. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
  7. Martin L. Weitzman, 2001. "Gamma Discounting," American Economic Review, American Economic Association, vol. 91(1), pages 260-271, March.
  8. Landsberger, Michael & Meilijson, Isaac, 1990. "Demand for risky financial assets: A portfolio analysis," Journal of Economic Theory, Elsevier, vol. 50(1), pages 204-213, February.
  9. 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.
  10. Christian Gollier & Richard Zeckhauser, 2005. "Aggregation of Heterogeneous Time Preferences," Journal of Political Economy, University of Chicago Press, vol. 113(4), pages 878-896, August.
  11. Jouini, Elyès & Marin, Jean-Michel & Napp, Clotilde, 2010. "Discounting and divergence of opinion," Journal of Economic Theory, Elsevier, vol. 145(2), pages 830-859, March.
  12. Yvan Lengwiler, 2005. "Heterogeneous Patience and the Term Structure of Real Interest Rates," American Economic Review, American Economic Association, vol. 95(3), pages 890-896, June.
  13. 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.
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