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ifo Institut – Leibniz-Institut für Wirtschaftsforschung an der Universität München >
CESifo Working Papers, CESifo Group Munich >
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http://hdl.handle.net/10419/30504
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| Title: | | Expected net present value, expected net future value, and the Ramsey rule  |
| Authors: | | Gollier, Christian |
| Issue Date: | | 2009 |
| Series/Report no.: | | CESifo working paper 2643 |
| Abstract: | | Weitzman (1998) showed that when future interest rates are uncertain, using the expected net present value implies a term structure of discount rates that is decreasing to the smallest possible interest rate. On the contrary, using the expected net future value criterion implies an increasing term structure of discount rates up to the largest possible interest rate. We reconcile the two approaches by introducing risk aversion and risk-neutral probabilities. We show that if the aggregate consumption path is optimized, the two criteria are equivalent. Moreover, they are also equivalent to the Ramsey rule extended to uncertainty. |
| Subjects: | | discount rate asset price Ramsey rule cost-benefit analysis |
| JEL: | | D61 |
| Document Type: | | Working Paper |
| Appears in Collections: | | CESifo Working Papers, CESifo Group Munich
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