How Should the Distant Future be Discounted When Discount Rates are Uncertain?

Citation:

Weitzman ML, Gollier C. How Should the Distant Future be Discounted When Discount Rates are Uncertain?. Economic Letters [Internet]. 2010;107 (3) :350-353.

Abstract:

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.

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Last updated on 09/26/2017