publication . Preprint . Article . Book . Research . 2009

Expected Net Present Value, Expected Net Future Value, and the Ramsey Rule

GOLLIER, Christian;
Open Access
  • Published: 01 Jun 2009
  • Country: France
Abstract
Weitzman (1998) showed that when future interest rates are uncertain, using the expected net present value implies a term structure of discount rates that is decreasing to the smallest possible interest rate. On the contrary, using the expected net future value criteria implies an increasing term structure of discount rates up to the largest possible interest rate. We reconcile the two approaches by introducing risk aversion and utility maximization. We show that if the aggregate consumption path is optimized and made flexible to news about future interest rates, the two criteria are equivalent. Moreover, they are also equivalent to the Ramsey rule extended to u...
Subjects
free text keywords: B- ECONOMIE ET FINANCE, discount rate, asset price, Ramsey rule, cost-benefit analysis, D61, asset price, cost-benefit analysis, Kosten-Nutzen-Analyse, Dynamische Investitionsrechnung, Abzinsung, Zinsstruktur, Optimale Besteuerung, Theorie, DISCOUNT RATE, RAMSEY RULE, CLIMATE CHANGE, COST BENEFIT ANALYSIS, [SHS]Humanities and Social Sciences, Economics and Econometrics, Management, Monitoring, Policy and Law, Net present value, Welfare economics, Risk aversion, Interest rate, media_common.quotation_subject, media_common, Future interest, Future value, Economics, Cost–benefit analysis, Utility maximization, Microeconomics, Present value, jel:D61, ddc:330
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publication . Preprint . Article . Book . Research . 2009

Expected Net Present Value, Expected Net Future Value, and the Ramsey Rule

GOLLIER, Christian;