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Title:How should the distant future be discounted when discount rates are uncertain? PDF Logo
Authors:Gollier, Christian
Weitzman, Martin L.
Issue Date:2009
Series/Report no.:CESifo working paper 2863
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.
Subjects:discount rate
term structure
climate change
cost-benefit analysis
JEL:G12
E43
Q51
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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