publication . Article . Research . Preprint . 2009

Should we Discount the Far-Distant Future at its Lowest Possible Rate?

Christian Gollier;
Open Access English
  • Published: 01 Jun 2009
  • Publisher: Kiel: Kiel Institute for the World Economy (IfW)
  • Country: France
Abstract
International audience; In this paper, we elaborate on an idea initially developed by Weitzman (1998) that justifies taking the lowest possible discount rate for far-distant future cash flows. His argument relies on the arbitrary assumption that when the future rate of return of capital (RRC) is uncertain, one should invest in any project with a positive expected net present value. We examine an economy with a risk-averse representative agent facing an uncertain evolution of the RRC. In this context, we characterize the socially efficient stochastic consumption path, which allows us in turn to use the Ramsey rule to characterize the term structure of socially ef...
Subjects
free text keywords: E43, G12, Q51, Discount rate, term structure, certainty equivalent rate, Ramsey rule, sustainable development, Soziale Diskontrate, Zinsstruktur, Optimales Wachstum, Nachhaltige Entwicklung, Theorie, DISCOUNT RATE, TERM STRUCTURE, CERTAINTY EQUIVALENT RATE, RAMSEY RULE, SUSTAINABLE DEVELOPMENT, [SHS]Humanities and Social Sciences, Discount rate,term structure,certainty equivalent rate,Ramsey rule,sustainable development, DISCOUNT RATE;TERM STRUCTURE;CERTAINTY EQUIVALENT RATE;RAMSEY RULE;SUSTAINABLE DEVELOPMENT, développement durable, ddc:330, Economics, Cash flow, Sustainable development, Autocorrelation, Rate of return, Econometrics, Net present value, Representative agent, jel:E43, jel:G12, jel:Q51, lcsh:Social Sciences, lcsh:H, lcsh:Economics as a science, lcsh:HB71-74
Funded by
EC| LONG-TERM RISKS
Project
LONG-TERM RISKS
Evaluation and management of collective long-term risks
  • Funder: European Commission (EC)
  • Project Code: 230589
  • Funding stream: FP7 | SP2 | ERC

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