The Long-Run Discount Rate Controversy

Gollier, Christian and Hammitt, James K. (2014) The Long-Run Discount Rate Controversy. Annual Review of Resource Economics, vol.6. pp. 273-295.

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Official URL: http://tse-fr.eu/pub/29572

Abstract

The choice of the rate at which one should discount the long-term benefits of mitigating climate change is highly controversial. Both the level and the slope of the term structure of discount rates have been discussed intensively in relation to the determination of the social cost of carbon. Although some of the parameters of the problem are ethical and outside the scope of economic analysis, we claim that there are converging and convincing arguments in favor of using an annual real risk-free discount rate going from around 4% to around 1% for maturities going from 0 to infinity. Investing in climate mitigation yields highly uncertain future benefits. This should also be taken into account in the selection of the discount rate, though the appropriate approach is highly controversial.

Item Type: Article
Language: English
Date: October 2014
Refereed: Yes
Uncontrolled Keywords: Climate change, sustainable development, valuation of environmental assets, value of statistical life
JEL codes: D61 - Allocative Efficiency; Cost-Benefit Analysis
D81 - Criteria for Decision-Making under Risk and Uncertainty
D90 - General
G18 - Government Policy and Regulation
H43 - Project Evaluation; Social Discount Rate
Q01 - Sustainable Development
Q54 - Climate; Natural Disasters
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 21 Sep 2015 13:08
Last Modified: 24 Jan 2019 00:11
OAI ID: oai:tse-fr.eu:29572
URI: http://publications.ut-capitole.fr/id/eprint/18455

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