Journal Article

No. 2010-13 | April 22, 2010
Yes, We Should Discount the Far-Distant Future at Its Lowest Possible Rate: A Resolution of the Weitzman–Gollier Puzzle PDF Icon

Abstract

In this paper the author proves that the Expected Net Future Value (ENFV) criterion can lead a risk neutral social planner to reject projects that increase expected utility. By contrast, the Expected Net Present Value (ENPV) rule correctly identifies the economic value of the project. While the ENFV increases with uncertainty over future interest rates, the expected utility decreases because of the planner’s desire to smooth consumption across time. This paper therefore shows that Weitzman (1998) is “right” and that, within his economy, the far-distant future should be discounted at its lowest possible rate.

JEL Classification

Q51

Citation

Mark C. Freeman (2010). Yes, We Should Discount the Far-Distant Future at Its Lowest Possible Rate: A Resolution of the Weitzman–Gollier Puzzle. Economics: The Open-Access, Open-Assessment E-Journal, Vol. 4, 2010-13. http://dx.doi.org/10.5018/economics-ejournal.ja.2010-13

Assessment

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