Gamma Discounting

A critical problem, which has long plagued cost-benefit analysis, concerns the appropriate interest rate to use for discounting the future. This paper proposes a new approach to resolving the dilemma of the unknown discount rate, by incorporating the uncertainty directly into the analysis. An operational methodology is developed to determine the time-dependent schedule of effective interest rates appropriate for discounting long-term environmental projects or activities, like mitigating the effects of global warming.