Should we discount the far-distant future at its lowest possible rate? - INRAE - Institut national de recherche pour l’agriculture, l’alimentation et l’environnement Accéder directement au contenu
Article Dans Une Revue Economics Année : 2009

Should we discount the far-distant future at its lowest possible rate?

Résumé

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 efficient discount rates. We show that Weitzman’s claim is qualitatively correct if shocks on the RRC are persistent. On the contrary, in the absence of any serial correlation in the RRC, the term structure of discount rates should be flat.
Fichier principal
Vignette du fichier
2013_Gollie_Economics. Journal Articles_1.pdf (238.19 Ko) Télécharger le fichier
Origine : Fichiers éditeurs autorisés sur une archive ouverte
Loading...

Dates et versions

hal-02654972 , version 1 (29-05-2020)

Licence

Paternité - Partage selon les Conditions Initiales

Identifiants

  • HAL Id : hal-02654972 , version 1
  • PRODINRA : 29743

Citer

Christian Gollier. Should we discount the far-distant future at its lowest possible rate?. Economics, 2009, 3 (25), pp.1-14. ⟨hal-02654972⟩
15 Consultations
44 Téléchargements

Partager

Gmail Facebook X LinkedIn More