Gamma discounters are short-termist

Christian Gollier ()

Journal of Public Economics, 2016, vol. 142, issue C, 83-90

Abstract: Using the gamma discounting argument of Weitzman (1998, 2001) when future interest rates are uncertain, several countries have decided to base their investment and sustainability policy evaluation on a decreasing term structure of discount rates. We show that this interpretation of the gamma discounting argument is in fact equivalent to the Local Expectations Hypothesis, a hypothesis globally rejected in empirical finance. We also show that gamma discounters are time-inconsistent and short-termist when shocks to economic growth are persistent. This is because they fail to account for the correlation between future consumption levels and spot interest rates.

Keywords: Decreasing discount rates; Expectations hypothesis; Uncertain growth; Weitzman-Gollier puzzle (search for similar items in EconPapers)
JEL-codes: E43 G11 G12 Q54 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Working Paper: Gamma discounters are short-termist (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:142:y:2016:i:c:p:83-90

DOI: 10.1016/j.jpubeco.2016.08.006

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