Discounting the Long-Distant Future: A Simple Explanation for the Weitzman-Gollier-Puzzle
Universitaet Regensburg; CESifo (Center for Economic Studies and Ifo Institute)
University of Regensburg
CESifo Working Paper Series No. 2357
In this paper, we reconsider the debate on Weitzman's (1998) suggestion to discount the long-run future at the lowest possible rate, referring to Gollier (2004) and Hepburn & Groom (2007). We show that, while Weitzman's use of the present value approach may indeed seem questionable, its outcome, i.e. a discount rate that is declining over time, is nevertheless reasonable, since it can be justified by assuming a plausible degree of risk aversion.
Number of Pages in PDF File: 13
Keywords: discount rates, uncertainty, risk aversion
JEL Classification: D40, E43, Q51
Date posted: July 30, 2008
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