Article
Discounting and Growth
Christian Gollier
American Economic Review
vol. 104, n. 5, 2014, pp. 534–537
Reference
Christian Gollier, “Discounting and Growth”, American Economic Review, vol. 104, n. 5, 2014, pp. 534–537.
Abstract
In a growing economy, the discount rate to evaluate a long-term investment is the minimum rate of expected return that compensates for the increased intergenerational inequalities. Because the growth rate is uncertain, there is a precautionary argument in favor of lowering the discount rate. If shocks to growth are persistent, this is a robust argument for using a smaller discount rate for more distant time horizons. If climate damages are positively correlated with future consumption, a risk premium should be added to the climate discount rate, which could have an increasing term structure.
JEL codes
- D61: Allocative Efficiency • Cost–Benefit Analysis
- G12: Asset Pricing • Trading Volume • Bond Interest Rates
- H43: Project Evaluation • Social Discount Rate
Research partnership
Risk Attitude