The nature of discounting
From monetary policies to the climate change problem, from the burden of private credit card debts to the evaluation of public projects, discount rate is the central issue, yet there is little clear understanding about the nature of discounting. In this paper, applying a newly developed production theory, we discuss how discount rate is related to other factors in social systems, such as risk, duration of production, fixed cost in production and market size. The relations among different factors in a social system put constraints on the ranges of discount rate that are viable in particular environments. Our findings have strong policy implications. In a world of increasing cost of extracting natural resources, the continuation of low discount rate policy will generate wide gyration of social systems that we have witnessed in recent years.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jing Chen & James K. Galbraith, 2011. "Institutional Structures and Policies in an Environment of Increasingly Scarce and Expensive Resources: A Fixed Cost Perspective," Journal of Economic Issues, M.E. Sharpe, Inc., vol. 45(2), pages 301-308, June.
- Thaler, Richard, 1981. "Some empirical evidence on dynamic inconsistency," Economics Letters, Elsevier, vol. 8(3), pages 201-207.
- Martin L. Weitzman, 2001.
American Economic Review,
American Economic Association, vol. 91(1), pages 260-271, March.
- Martin L. Weitzman, 1998. "Gamma Discounting," Harvard Institute of Economic Research Working Papers 1843, Harvard - Institute of Economic Research.
- Berns, Gregory S. & Loewenstein, George & Laibson, David I., 2007. "Intertemporal Choice - Toward an Integrative Framework," Scholarly Articles 4554332, Harvard University Department of Economics.
- Jing Chen & James K. Galbraith, 2012. "A Common Framework for Evolutionary and Institutional Economics," Journal of Economic Issues, M.E. Sharpe, Inc., vol. 46(2), pages 419-428, June.
- Pizer, William & Newell, Richard, 2000.
"Discounting the Distant Future: How Much Do Uncertain Rates Increase Valuations?,"
dp-00-45, Resources For the Future.
- 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.
- Jing Chen & James Galbraith, 2012. "Austerity and fraud under different structures of technology and resource abundance," Cambridge Journal of Economics, Oxford University Press, vol. 36(1), pages 335-343.
- Jing Chen, 2005. "Imperfect Market or Imperfect Theory: A Unified Analytical Theory of Production and Capital Structure of Firms," Finance 0509009, EconWPA.
- Jing Chen, 2006. "An analytical theory of project investment: a comparison with real option theory," International Journal of Managerial Finance, Emerald Group Publishing, vol. 2(4), pages 354-363, September.
When requesting a correction, please mention this item's handle: RePEc:eee:streco:v:23:y:2012:i:3:p:313-324. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.