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Title:Yes, we should discount the far-distant future at its lowest possible rate: A resolution of the Weitzman-Gollier puzzle PDF Logo
Authors:Freeman, Mark C.
Issue Date:2010
Citation:[Journal:] Economics: The Open-Access, Open-Assessment E-Journal [Volume:] 4 [Issue:] 2010-13 [Pages:] 1-21 [DOI/URN:] doi:10.5018/economics-ejournal.ja.2010-13
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.
Subjects:Discount rates
term structure
capital budgeting
interest rate uncertainty
environmental planning
JEL:D61
E43
G12
G31
Q51
Persistent Identifier of the first edition:doi:10.5018/economics-ejournal.ja.2010-13
Creative Commons License:http://creativecommons.org/licenses/by-nc/2.0/de/deed.en
Document Type:Article
Appears in Collections:Economics: The Open-Access, Open-Assessment E-Journal - Journal Articles

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