Gollier, Christian and Weitzman, Martin L. (2009) How Should the Distant Future be Discounted When Discount Rates are Uncertain? TSE Working Paper, n. 09-107

There is a more recent version of this item available.

Preview

Text Download (258kB) | Preview

Abstract

It is not immediately clear how to discount distant-future events, like climate change, when the distant-future discount rate itself is uncertain. The so-called “Weitzman-Gollier puzzle” is the fact that two seemingly symmetric and equally plausible ways of dealing with uncertain future discount rates appear to give diametrically opposed results with the opposite policy implications. We explain how the “Weitzman-Gollier puzzle” is resolved. When agents optimize their consumption plans and probabilities are adjusted for risk, the two approaches are identical. What we would wish a reader
to take away from this paper is the bottom-line message that the appropriate long run discount rate declines over time toward its lowest possible value.

Available Versions of this Item

• How Should the Distant Future be Discounted When Discount Rates are Uncertain? (deposited 18 Jan 2012 06:00) [Currently Displayed]
  • How Should the Distant Future be Discounted When Discount Rates are Uncertain? (deposited 18 Jan 2012 06:02)