What's the rate? Disentangling the Weitzman and the Gollier effect

Christian P. Traeger

Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series from Department of Agricultural & Resource Economics, UC Berkeley

Abstract: The uncertainty of future economic development affects the term structure of discount rates and, thus, the intertemporal weights that are tobe used in cost benefit analysis. The U.K. and France have recently adopteda falling term structure to incorporate uncertainty and the U.S. is consideringa similar step. A series of publications discusses the following concern: Aseemingly analogous argument used to justify falling discount rates can alsobe used to justify increasing discount rates. We show that increasing anddecreasing discount rates mean different things, can coexist, are created bydifferent channels through which risk affects evaluation, and have the samequalitative effect of making long-term payoffs more attractive.

Keywords: Agriculture; Agriculture Operations; and Related Sciences; Economics; benefit cost analysis; discounting; term structure; uncertainty; Weitzman-Gollier puzzle (search for similar items in EconPapers)
Date: 2012-02-01
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://www.escholarship.org/uc/item/88x3d1vw.pdf;origin=repeccitec (application/pdf)

Related works:
Working Paper: What’s the Rate? Disentangling the Weitzman and the Gollier Effect (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:cdl:agrebk:qt88x3d1vw

Access Statistics for this paper

More papers in Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series from Department of Agricultural & Resource Economics, UC Berkeley
Contact information at EDIRC.
Series data maintained by Lisa Schiff ().