Yes, we should discount the far-distant future at its lowest possible rate: a resolution of the Weitzman-Gollier puzzle

Mark C. Freeman

No 2009-42, Economics Discussion Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: In this paper the author proves that the Expected Net Future Value (ENFV) criterion can lead a risk neutral social planner to reject projects that increase expected utility. By contrast, the Expected Net Present Value (ENPV) rule correctly identifies the economic value of the project. While the ENFV increases with uncertainty over future interest rates, the expected utility decreases because of the planner's desire to smooth consumption across time. This paper therefore shows that Weitzman (1998) is right and that, within his economy, the far-distant future should be discounted at its lowest possible rate.

Keywords: Discount rates; term structure; capital budgeting; interest rate uncertainty; environmental planning (search for similar items in EconPapers)
JEL-codes: D61 E43 G12 G31 Q51 (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-ene, nep-env, nep-hpe and nep-ppm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwedp:200942

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