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The Sign of Risk for Present Value of Future Losses

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  • Brian P. Hanley
  • Steve Keen

Abstract

In the ongoing debate over discount rates and climate change, William Nordhaus has championed a higher discount rate to account for risk. Nicholas Stern has championed a lower rate. Here we prove that in the case of a stream of future losses, risk can only be represented by a lower discount rate, never a higher one.

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  • Brian P. Hanley & Steve Keen, 2022. "The Sign of Risk for Present Value of Future Losses," Papers 2209.06654, arXiv.org.
    • Handle: RePEc:arx:papers:2209.06654
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    References listed on IDEAS

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    1. Stern,Nicholas, 2007. "The Economics of Climate Change," Cambridge Books, Cambridge University Press, number 9780521700801.
    2. Nicholas Stern & Joseph Stiglitz & Charlotte Taylor, 2022. "The economics of immense risk, urgent action and radical change: towards new approaches to the economics of climate change," Journal of Economic Methodology, Taylor & Francis Journals, vol. 29(3), pages 181-216, July.
    3. Peter H. Howard & Thomas Sterner, 2017. "Few and Not So Far Between: A Meta-analysis of Climate Damage Estimates," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 68(1), pages 197-225, September.
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