Discounting in an Uncertain World -- Disentangling the Debate on the Weitzman-Gollier Puzzle

24 Pages Posted: 7 Oct 2014

See all articles by Wolfgang Buchholz

Wolfgang Buchholz

Universitaet Regensburg; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: September 29, 2014

Abstract

Under conditions of risk it makes a difference whether the discount rate is determined as an expected present or as an expected future value. This difference which is dubbed as the Weitzman-Gollier puzzle has stimulated an intensive discussion which, however, is somewhat confusing. In this paper we try to provide some clarification by separating the different topics of the debate. In particular we give an intuitive explanation for the divergence between the outcomes of the present and the future value approach. Moreover, we show that a declining time patter of the discount rate which is the major implication of Weitzman’s present value approach can also be obtained in many other and more appealing ways.

Keywords: cost-benefit analysis, discounting, risk, Weitzman-Gollier Puzzle

JEL Classification: D61, D81, D99, G11

Suggested Citation

Buchholz, Wolfgang, Discounting in an Uncertain World -- Disentangling the Debate on the Weitzman-Gollier Puzzle (September 29, 2014). CESifo Working Paper Series No. 4967, Available at SSRN: https://ssrn.com/abstract=2506502 or http://dx.doi.org/10.2139/ssrn.2506502

Wolfgang Buchholz (Contact Author)

Universitaet Regensburg ( email )

D-93040 Regensburg, 93053
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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