The Ramsey Discounting Formula for a Hidden-State Stochastic Growth Process
The long term discount rate is critically dependent upon projections of future growth rates that are fuzzier in proportion to the remoteness of the time horizon. This paper models such increasing fuzziness as an evolving hidden-state stochastic process. The underlying trend growth rate is an unobservable random walk hidden by noisy transitory shocks and recoverable only as a probability distribution via Bayesian updating. A simple expression is derived for the time-declining Ramsey discount rate. The components of this hidden-state Ramsey discounting formula are then analyzed, followed by a few remarks about possible implications and applications.
|Date of creation:||Jun 2012|
|Publication status:||published as Martin Weitzman, 2012. "The Ramsey Discounting Formula for a Hidden-State Stochastic Growth Process," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 53(3), pages 309-321, November.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
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.:
- Hepburn, Cameron & Groom, Ben, 2007. "Gamma discounting and expected net future value," Journal of Environmental Economics and Management, Elsevier, vol. 53(1), pages 99-109, January.
- Christian Gollier, 2012. "Pricing the Planet's Future: The Economics of Discounting in an Uncertain World," Economics Books, Princeton University Press, edition 1, number 9894.
- Gollier, Christian & Weitzman, Martin L., 2010.
"How should the distant future be discounted when discount rates are uncertain?,"
Elsevier, vol. 107(3), pages 350-353, June.
- Christian Gollier & Martin L. Weitzman, 2009. "How Should the Distant Future be Discounted when Discount Rates are Uncertain?," CESifo Working Paper Series 2863, CESifo Group Munich.
- Gollier, Christian & Weitzman, Martin L., 2009. "How Should the Distant Future be Discounted When Discount Rates are Uncertain?," IDEI Working Papers 588, Institut d'Économie Industrielle (IDEI), Toulouse.
- Gollier, Christian & Weitzman, Martin L., 2009. "How Should the Distant Future be Discounted When Discount Rates are Uncertain?," TSE Working Papers 09-107, Toulouse School of Economics (TSE).
- Partha Dasgupta, 2008. "Discounting climate change," Journal of Risk and Uncertainty, Springer, vol. 37(2), pages 141-169, December.
- 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.
- Pizer, William & Newell, Richard, 2000. "Discounting the Distant Future: How Much Do Uncertain Rates Increase Valuations?," Discussion Papers dp-00-45, Resources For the Future.
- Phoebe Koundouri & Theologos Pantelidis & Ben Groom & Ekaterini Panopoulou, 2007.
"Discounting the distant future: How much does model selection affect the certainty equivalent rate?,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 22(3), pages 641-656.
- Ekaterini Panopoulou & B. Groom & P. Koundouri & Theologos Pantelidis, 2005. "Discounting the distant future: How much does model selection affect the certainty equivalent rate?," Economics, Finance and Accounting Department Working Paper Series n1480105, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
- Newell, Richard G. & Pizer, William A., 2004. "Uncertain discount rates in climate policy analysis," Energy Policy, Elsevier, vol. 32(4), pages 519-529, March.
- repec:hrv:faseco:33373345 is not listed on IDEAS
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:18157. 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: ()
If references are entirely missing, you can add them using this form.