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Extending the Ramsey Equation further: Discounting under Mutually Utility Independent and Recursive Preferences

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  • Hector, Svenja

Abstract

I revisit the consumption discount rate for a novel combination of standard assumptions. To disentangle risk and time preferences, I consider a decision maker with recursive preferences la Kreps and Porteus (1978). Moreover I assume that preferences are mutually utility independent in the sense of Koopmans (1960). In an in finite horizon setting with independent growth risk and constant elasticity of substitution, the consumption discount rate is diminished by a previously unrecognised horizon effect. This effect may be signifi cant if the rate of pure time preference is moderately small.

Suggested Citation

  • Hector, Svenja, 2015. "Extending the Ramsey Equation further: Discounting under Mutually Utility Independent and Recursive Preferences," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113061, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc15:113061
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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