Do declining discount rates lead to time inconsistent economic advice?

descriptionPublicationkeyboard_double_arrow_right Article 01 Nov 2006 Denmark English Publisher:Elsevier BVJournal:Ecological Economics, volume 60, pages 138-144 (issn: 0921-8009,

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Authors: Hansen, Anders Chr.;

doi: 10.1016/j.ecolecon.2006.03.007

Do declining discount rates lead to time inconsistent economic advice?

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Abstract

This paper addresses the risk of time inconsistency in economic appraisals related to the use of hyperbolic discounting (declining discount rates) instead of exponential discounting (constant discount rate). Many economists are uneasy about the prospects of potential time inconsistency. The paper discusses whether they have reason to be uneasy. The answer is no. The risk of reversing previous recommendations due to the passing of time alone are not severely larger for hyperbolic discounting than it is for exponential discounting. And it can be managed by the same rules of precaution normally used in long term strategic policy decisions and institutional reforms.

Udgivelsesdato: 01.11

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Denmark

Related Organizations

Roskilde University
Denmark

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