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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- Levhari, David & Srinivasan, T N, 1969. "Optimal Savings under Uncertainty," Review of Economic Studies, Wiley Blackwell, vol. 36(106), pages 153-63, April.
- Christian Gollier, 2008.
"Discounting with fat-tailed economic growth,"
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- Barrett, Scott, 2013. "Climate treaties and approaching catastrophes," Journal of Environmental Economics and Management, Elsevier, vol. 66(2), pages 235-250.
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- 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.
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