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Discounting and Growth

Gollier, Christian (2014) Discounting and Growth. American Economic Review (AER), vol. 104 (n° 5). pp. 534-537.

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Identification Number : 10.1257/aer.104.5.534


In a growing economy, the discount rate to evaluate a long-term investment is the minimum rate of expected return that compensates for the increased intergenerational inequalities. Because the growth rate is uncertain, there is a precautionary argument in favor of lowering the discount rate. If shocks to growth are persistent, this is a robust argument for using a smaller discount rate for more distant time horizons. If climate damages are positively correlated with future consumption, a risk premium should be added to the climate discount rate, which could have an increasing term structure.

Item Type: Article
Language: English
Date: 2014
Refereed: Yes
JEL Classification: D61 - Allocative Efficiency; Cost-Benefit Analysis
G12 - Asset Pricing; Trading volume; Bond Interest Rates
H43 - Project Evaluation; Social Discount Rate
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 16 Mar 2015 14:56
Last Modified: 02 Apr 2021 15:49
OAI Identifier:

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