Value of the distant future: Model-independent results
Yuri A. Katz
Physica A: Statistical Mechanics and its Applications, 2017, vol. 466, issue C, 269-276
This paper shows that the model-independent account of correlations in an interest rate process or a log-consumption growth process leads to declining long-term tails of discount curves. Under the assumption of an exponentially decaying memory in fluctuations of risk-free real interest rates, I derive the analytical expression for an apt value of the long run discount factor and provide a detailed comparison of the obtained result with the outcome of the benchmark risk-free interest rate models. Utilizing the standard consumption-based model with an isoelastic power utility of the representative economic agent, I derive the non-Markovian generalization of the Ramsey discounting formula. Obtained analytical results allowing simple calibration, may augment the rigorous cost-benefit and regulatory impact analysis of long-term environmental and infrastructure projects.
Keywords: Stochastic discount factor; Climate finance; Cost-benefit analysis (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:466:y:2017:i:c:p:269-276
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