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For environmental problems such as global warming future costs must be balanced against present costs. This is traditionally done using an exponential function with a constant discount rate, which reduces the present value of future costs. The result is highly sensitive to the choice of discount...
Persistent link: https://www.econbiz.de/10013072858
If the historical average annual real interest rate is m 0, and if the world is stationary, should consumption in the distant future be discounted at the rate of m per year? Suppose the annual real interest rate r(t) reverts to m according to the Ornstein Uhlenbeck (OU) continuous time process...
Persistent link: https://www.econbiz.de/10013050893