Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/30504 
Year of Publication: 
2009
Series/Report no.: 
CESifo Working Paper No. 2643
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
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:

Files in This Item:
File
Size
192.87 kB





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