A Note on Uncertainty and Discounting in Models of Economic Growth
AbstractThe implications of uncertainty for appropriate discounting in models of economic growth have been studied at some length, notably, Levhari and Srinivasan (1969), Gollier (2002). A detailed account has now appeared in Dasgupta (2008), sections 4 and 5 (pp. 160-166). One interesting, if perhaps minor, aspect is that under certain circumstances, there appeared to be no solution or at least no satisfactory one. More importantly, the formulas are usually given for the log normal case and are somewhat complicated and hard to interpret intuitively. I show here that assuming a general distribution for returns to capital gives simpler and more understandable results.
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Bibliographic InfoPaper provided by Stanford Institute for Economic Policy Research in its series Discussion Papers with number 08-017.
Date of creation: Jan 2009
Date of revision:
Discoungtin; Economic Growth Model; Gollier; Levhair and Srinivasan;
Other versions of this item:
- Kenneth Arrow, 2009. "A note on uncertainty and discounting in models of economic growth," Journal of Risk and Uncertainty, Springer, vol. 38(2), pages 87-94, April.
- C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions
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- Christian Gollier, 2008.
"Discounting with fat-tailed economic growth,"
Journal of Risk and Uncertainty,
Springer, vol. 37(2), pages 171-186, December.
- Partha Dasgupta, 2008. "Discounting climate change," Journal of Risk and Uncertainty, Springer, vol. 37(2), pages 141-169, December.
- Gollier, Christian, 2002. "Discounting an uncertain future," Journal of Public Economics, Elsevier, vol. 85(2), pages 149-166, August.
- Levhari, David & Srinivasan, T N, 1969. "Optimal Savings under Uncertainty," Review of Economic Studies, Wiley Blackwell, vol. 36(106), pages 153-63, April.
- In Chang Hwang & Richard S.J. Tol & Marjan W. Hofkes, 2013. "Tail-effect and the Role of Greenhouse Gas Emissions Control," Working Paper Series 6613, Department of Economics, University of Sussex.
- David McInerney & Robert Lempert & Klaus Keller, 2012. "What are robust strategies in the face of uncertain climate threshold responses?," Climatic Change, Springer, vol. 112(3), pages 547-568, June.
- Antony Millner, 2013. "On Welfare Frameworks and Catastrophic Climate Risks," CESifo Working Paper Series 4442, CESifo Group Munich.
- Partha Dasgupta, 2011. "The Ethics of Intergenerational Distribution: Reply and Response to John E. Roemer," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 50(4), pages 475-493, December.
- Nævdal, Eric & Vislie, Jon, 2013. "Resource Depletion and Capital Accumulation under Catastrophic Risk: Policy Actions against Stochastic Thresholds and Stock Pollution," Memorandum 24/2013, Oslo University, Department of Economics.
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