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Discounting, Uncertainty, and Revealed Time Preference

Discounting, Uncertainty, and Revealed Time Preference Abstract: Recent studies suggest that direct preferences regarding investment gains and losses may significantly affect people's behavior in financial markets. The present paper shows that this hypothesis has striking implications for the choice of discount rates in cost-benefit analysis. The paper explores a model in which the future benefits provided by a generic public good —environmental quality —should be discounted at a rate that is close to the market rate of return for risk-free financial assets. This holds true even when the public good has risk characteristics equivalent to those of risky forms of wealth such as corporate stocks. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Land Economics University of Wisconsin Press

Discounting, Uncertainty, and Revealed Time Preference

Land Economics , Volume 85 (1) – Apr 4, 2009

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Publisher
University of Wisconsin Press
Copyright
Copyright © University of Wisconsin Press
ISSN
1543-8325
Publisher site
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Abstract

Abstract: Recent studies suggest that direct preferences regarding investment gains and losses may significantly affect people's behavior in financial markets. The present paper shows that this hypothesis has striking implications for the choice of discount rates in cost-benefit analysis. The paper explores a model in which the future benefits provided by a generic public good —environmental quality —should be discounted at a rate that is close to the market rate of return for risk-free financial assets. This holds true even when the public good has risk characteristics equivalent to those of risky forms of wealth such as corporate stocks.

Journal

Land EconomicsUniversity of Wisconsin Press

Published: Apr 4, 2009

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