Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/244518 
Year of Publication: 
2016
Series/Report no.: 
Working Paper No. 3/2016
Publisher: 
Örebro University School of Business, Örebro
Abstract: 
Weitzman (2012, 2013) has suggested a method for calculating social discount rates for long-term investments when project returns are covariant with consumption or other macroeconomic variables, so called "tail-hedge discounting". This method relies on a parameter called "real project gamma" that measures the proportion of project returns that is covariant with the macroeconomic variable. We suggest two approaches for estimation of this gamma when the project returns and the macroeconomic variable are co-integrated. First we use Weitzman's (2012) own approach, and second a simple data transformation that keeps gamma within the zero to one interval. In a Mont-Carlo study we show that the method of using a standardized series is better and robust under different data-generating processes. Both approaches are demonstrated in a Monte-Carlo experiment and applied to Swedish time-series data from 1950-2011 for annual time-series data for rail freight (a measure of returns from rail investments) and GDP.
Subjects: 
GDP
social rate of discount
tail-hedge discounting
cost-benefit analysis
real-project gamma
JEL: 
D61
D90
G11
H43
R42
Document Type: 
Working Paper

Files in This Item:
File
Size
675.44 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.