Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/155041
Authors: 
Gollier, Christian
Year of Publication: 
1999
Series/Report no.: 
Nota di Lavoro, Fondazione Eni Enrico Mattei 88.1999
Abstract: 
We discuss the selection of the socially efficient discount rate for public investment projects that entail costs and benefits in the far distant future. We show that the discount rate should be a decreasing function of time horizon under some specific restrictions on the distribution of uncertain growth and on preferences. We consider a logarithmic random walk for consumption. The benchmark result is that, in the absence of any risk of recession, the yield curve is decreasing if relative risk aversion is decreasing. Relaxing the assumption on the absence of recession requires more restrictions on preferences, as increasing relative prudence.
Subjects: 
Discounting
uncertain growth
prudence
long term
JEL: 
D81
D91
Q25
Q28
Document Type: 
Working Paper

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