American Economic Review: Vol. 104 No. 5 (May 2014)


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Discounting and Growth

Article Citation

Gollier, Christian. 2014. "Discounting and Growth." American Economic Review, 104(5): 534-37.

DOI: 10.1257/aer.104.5.534


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.

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Gollier, Christian (U Toulouse I Capitole)

JEL Classifications

D61: Allocative Efficiency; Cost-Benefit Analysis
G12: Asset Pricing; Trading Volume; Bond Interest Rates
H43: Project Evaluation; Social Discount Rate

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