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The Effect of a Constant or a Declining Discount Rate on Optimal Investment Timing

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  • Gonzalo Edwards

    () (Instituto de Economía. Pontificia Universidad Católica de Chile.)

Abstract

This paper shows that exponential discounting may have anadvancing effect on the timing of investment, not captured bysensitivity analysis carried out for the complete range of instantaneous discount rates implicit in declining discounting.

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File URL: http://www.economia.puc.cl/docs/dt_227.pdf
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Bibliographic Info

Paper provided by Instituto de Economia. Pontificia Universidad Católica de Chile. in its series Documentos de Trabajo with number 227.

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Date of creation: 2002
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Publication status: Published as "The Effect of a Constant or a Declining Discount Rate on Optimal Investment Timing", Journal of Applied Economics Letters, Volume 10, Number 10, 2003.
Handle: RePEc:ioe:doctra:227

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Related research

Keywords: Declining discounting; exponential discounting; hyperbolic discounting; investment timing; project evaluation;

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References

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  1. Cropper, Maureen & Laibson, David, 1998. "The implications of hyperbolic discounting for project evaluation," Policy Research Working Paper Series 1943, The World Bank.
  2. Martin L. Weitzman, 1998. "Gamma Discounting," Harvard Institute of Economic Research Working Papers 1843, Harvard - Institute of Economic Research.
  3. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
  4. 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.
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Cited by:
  1. Joseph Eisenhauer & Luigi Ventura, 2006. "The prevalence of hyperbolic discounting: some European evidence," Applied Economics, Taylor and Francis Journals, vol. 38(11), pages 1223-1234.
  2. Gonzalo Edwards, 2002. "La Tasa de Descuento en Proyectos de Largo Plazo," Documentos de Trabajo 231, Instituto de Economia. Pontificia Universidad Católica de Chile..

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