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American Economic Review: Vol. 91 No. 1 (March 2001)

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Gamma Discounting

Article Citation

Weitzman, Martin L. 2001. "Gamma Discounting." American Economic Review, 91(1): 260-271.

DOI: 10.1257/aer.91.1.260

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.

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Authors

Weitzman, Martin L. (Harvard U)

JEL Classifications

H43: Project Evaluation; Social Discount Rate
D61: Allocative Efficiency; Cost-Benefit Analysis


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