Expected net present value, expected net future value, and the Ramsey rule

Arbeitspapier

Weitzman (1998) showed that when future interest rates are uncertain, using the expected net present value implies a term structure of discount rates that is decreasing to the smallest possible interest rate. On the contrary, using the expected net future value criterion implies an increasing term structure of discount rates up to the largest possible interest rate. We reconcile the two approaches by introducing risk aversion and risk-neutral probabilities. We show that if the aggregate consumption path is optimized, the two criteria are equivalent. Moreover, they are also equivalent to the Ramsey rule extended to uncertainty.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 2643

Classification and Topics

• Classification: Wirtschaft ; Allocative Efficiency; Cost-Benefit Analysis
• Subject: discount rate ; asset price ; Ramsey rule ; cost-benefit analysis ; Kosten-Nutzen-Analyse ; Dynamische Investitionsrechnung ; Abzinsung ; Zinsstruktur ; Optimale Besteuerung ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Gollier, Christian
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2009

Further information

• Handle: http://hdl.handle.net/10419/30504
• Last update: 10.03.2025, 11:42 AM CET