The Ramsey Discounting Formula for a Hidden-State Stochastic Growth Process

DSpace/Manakin Repository

The Ramsey Discounting Formula for a Hidden-State Stochastic Growth Process

Citable link to this page

 

 
Title: The Ramsey Discounting Formula for a Hidden-State Stochastic Growth Process
Author: Weitzman, Martin L.
Citation: Weitzman, Martin L. 2012. The Ramsey Discounting Formula for a Hidden-State Stochastic Growth Process. Environmental and Resource Economics 53(3): 309-321.
Full Text & Related Files:
Abstract: The long term discount rate is critically dependent upon projections of future
growth rates that are fuzzier in proportion to the remoteness of the time horizon.
This paper models such increasing fuzziness as an evolving hidden-state stochastic
process. The underlying trend growth rate is an unobservable random walk hidden by
noisy transitory shocks and recoverable only as a probability distribution via Bayesian
updating. A simple expression is derived for the time-declining Ramsey discount rate.
The components of this hidden-state Ramsey discounting formula are then analyzed,
followed by a few remarks about possible implications and applications
Published Version: doi:10.1007/s10640-012-9594-y
Terms of Use: This article is made available under the terms and conditions applicable to Open Access Policy Articles, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#OAP
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:11204670
Downloads of this work:

Show full Dublin Core record

This item appears in the following Collection(s)

 
 

Search DASH


Advanced Search
 
 

Submitters