AbstractBy 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.
CitationWeitzman, Martin, L. 2001. "Gamma Discounting." American Economic Review, 91 (1): 260-271. DOI: 10.1257/aer.91.1.260
- H43 Project Evaluation; Social Discount Rate
- D61 Allocative Efficiency; Cost-Benefit Analysis