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


  • Gonzalo Edwards

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


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.

Suggested Citation

  • Gonzalo Edwards, 2002. "The Effect of a Constant or a Declining Discount Rate on Optimal Investment Timing," Documentos de Trabajo 227, Instituto de Economia. Pontificia Universidad Católica de Chile..
  • Handle: RePEc:ioe:doctra:227

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    References listed on IDEAS

    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, 2001. "Gamma Discounting," American Economic Review, American Economic Association, vol. 91(1), pages 260-271, March.
    3. 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.
    4. 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.
    5. Paul A. Samuelson, 1937. "A Note on Measurement of Utility," Review of Economic Studies, Oxford University Press, vol. 4(2), pages 155-161.
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    Cited by:

    1. Joseph Eisenhauer & Luigi Ventura, 2006. "The prevalence of hyperbolic discounting: some European evidence," Applied Economics, Taylor & Francis Journals, vol. 38(11), pages 1223-1234.
    2. repec:eee:resene:v:50:y:2017:i:c:p:135-163 is not listed on IDEAS
    3. Gonzalo Edwards, 2002. "La Tasa de Descuento en Proyectos de Largo Plazo," Documentos de Trabajo 231, Instituto de Economia. Pontificia Universidad Católica de Chile..

    More about this item


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

    JEL classification:

    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate


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