How Should the Distant Future Be Discounted When Discount Rates are Uncertain?
By Christian Gollier, Martin Weitzman. Social Science Research Network, 2010
330 citations recorded by the source corpus.
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.
View Paper: https://www.semanticscholar.org/paper/48e1bc6aef0a711c7d64855c2dbb8edf425ff787
How researchers see this paper
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- Richard S. J. Tol
- Robert S. Pindyck
- Christian Gollier
- Geoffrey M. Heal
- William Nordhaus
- Richard G. Newell
- B. Groom
- James K Hammitt
Citations in the corpus
- Targets for global climate policy: an overview (2013, background): “For example, Gollier (2002a, 2002b), Gollier and Weitzman (2010) and Weitzman (2001) show that if there is uncertainty about the pure rate of time preference or future economic growth, then the certainty-equivalent consumption discount rate is not constant, but rather falls over time.”
- The Long-Run Discount Rate Controversy (2014, background): “In a series of papers (Gollier 2009, 2010), Weitzman (2010), Gollier and Weitzman 2010), Gollier and Weitzman converged to the conclusion that both risk aversion and the optimization of the allocation of the net benefits through time must be introduced into the picture to solve the puzzle.”
- Should Governments Use a Declining Discount Rate in Project Analysis? (2014, background): “(31)Gollier and Weitzman (2010) discuss the theoretical underpinnings for the ENPV approach, which is consistent with utility maximization in the case of a logarithmic utility function.”
- Risk-Adjusted Gamma Discounting (2010, unknown): “7 The model of this section is a particular application of the more general framework of [8], which itself was based on earlier pioneering work by [2].”