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

Christian Gollier () and Martin L. Weitzman

No 2863, CESifo Working Paper Series from CESifo Group Munich

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.

Keywords: discount rate; term structure; climate change; cost-benefit analysis (search for similar items in EconPapers)
JEL-codes: E43 G12 Q51 (search for similar items in EconPapers)
Date: 2009
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Related works:
Journal Article: How should the distant future be discounted when discount rates are uncertain? (2010)
Working Paper: How Should the Distant Future be Discounted When Discount Rates are Uncertain? (2009)
Working Paper: How Should the Distant Future be Discounted When Discount Rates are Uncertain? (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:ces:ceswps:_2863

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