Declining Discount Rates: Economic Justifications and Implications for Long-Run Policy

38 Pages Posted: 2 Oct 2008

See all articles by Christian Gollier

Christian Gollier

University of Toulouse 1 - Industrial Economic Institute (IDEI); CESifo (Center for Economic Studies and Ifo Institute)

Phoebe Koundouri

Athens University of Economics and Business - Department of International and European Economic Studies; University of Reading - Department of Economics

Theologos Pantelidis

University of Kent

Abstract

Should economic policy target immediate problems like malaria and AIDS? Or should it target climate change, which may have even more dramatic life-threatening effects in the very long term? We discuss how the pattern of discount rates over the planning horizon bears on this important issue. A declining pattern of discount rates is theoretically justified by uncertainty about future economic conditions, and its shape and relevance can be estimated from historical data. We analyse empirically long-term interest rate data from nine countries, construct a weighted average representing a possible global discount rate pattern for a very long range of future dates, and assess its implications for the valuation of carbon mitigation policies.

Suggested Citation

Gollier, Christian and Koundouri, Phoebe and Pantelidis, Theologos, Declining Discount Rates: Economic Justifications and Implications for Long-Run Policy. Economic Policy, Vol. 23, Issue 56, pp. 757-795, October 2008. Available at SSRN: https://ssrn.com/abstract=1273932 or http://dx.doi.org/10.1111/j.1468-0327.2008.00211.x

Christian Gollier (Contact Author)

University of Toulouse 1 - Industrial Economic Institute (IDEI) ( email )

Manufacture des Tabacs
21 Allee de Brienne bat. F
Toulouse Cedex, F-31000
France
+33 61 12 86 30 (Phone)
+33 61 12 86 37 (Fax)

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Phoebe Koundouri

Athens University of Economics and Business - Department of International and European Economic Studies ( email )

GR-10434 Athens
Greece
+0030 210 8203147 (Phone)
+0030 210 8214122 (Fax)

HOME PAGE: http://www.econ.ucl.ac.uk/downloads/koundouri/cv.pdf

University of Reading - Department of Economics ( email )

Reading, RG6 6AA
United Kingdom
+44 - (0)118 - 9875123 (Phone)
+44 - (0)118 - 9750236 (Fax)

HOME PAGE: http://www.rdg.ac.uk/economics/koundouri.html

Theologos Pantelidis

University of Kent ( email )

Canterbury, Kent CT2 7PE
United Kingdom

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