| Author: | Weitzman, M.L. |
| Title: | Risk-adjusted gamma discounting |
| Journal: | Journal of Environmental Economics and Management
2010 : JUL, VOL. 60:1, p. 1-13 |
| Index terms: | growth models |
| Freeterms: | discounting distant future climate change |
| Language: | eng |
| Abstract: | In this paper, the previous gamma approach is extended by using a Ramsey optimal growth model, combined with uncertainty about future productivity, in order to "risk adjust" all probabilities by marginal utility weights. Some basic numerical examples are given, proposing that the overall effect of risk-adjusted gamma discounting on lowering distant-future discount rates may be notable. The driving force is a "fear factor" from risk aversion to permanent productivity shocks representing catastrophic future states of the world. |
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