American Economic Review Vol. 91 No. 1 2001
Gamma Discounting
Abstract
By incorporating the probability distribution directly into the analysis, this paper proposes a new theoretical approach to resolving the perennial dilemma of being uncertain about what discount rate to use in cost-benefit analysis. A numerical example is constructed from the results of a survey based on the opinions of 2,160 economists. The main finding is that even if every individual believes in a constant discount rate, the wide spread of opinion on what it should be makes the effective social discount rate decline significantly over time. Implications and ramifications of this proposed “gamma-discounting” approach are discussed.
- DOI
- 10.1257/aer.91.1.260
- Volume
- 91
- Issue
- 1
- Pages
- 260-271
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref