Discounting an Uncertain Future

Christian Gollier () and Jean Rochet

No 168, CESifo Working Paper Series from CESifo

Abstract: We discuss the selection of the socially optimal discount rate for public investment projects that entail costs and benefits in the very long run. More specifically, we examine in an expected utility framework how the uncertainty on the growth rate of the GNP per head affects this rate. Under various conditions on preferences, as positive prudence, decreasing relative risk aversion or decreasing absolute risk aversion, we prove that (1) the fact that growth is uncertain reduces the optimal discount rate, and that (2) this discount rate should be smaller the longer the time horizon is. We characterize the asymptotic value of the discount rate. We also examine the case of Kreps-Porteus social welfare functions.

Keywords: Discounting; uncertain growth; log-supermodularity; prudence; Kreps-Porteus preference (search for similar items in EconPapers)
Date: 1998
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://www.cesifo.org/DocDL/ces_wp168.pdf (application/pdf)

Related works:
Journal Article: Discounting an uncertain future (2002)
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: https://EconPapers.repec.org/RePEc:ces:ceswps:_168

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().