discounting and divergence of opinion the objective of this paper is to adopt a general equilibrium model and determine the socially efficient discount factor risk free rate and discount rate when there are heterogeneous anticipations about the growth of the economy as well as heterogeneous time preference rates among others we tackle the following questions is the socially efficient discount factor an arithmetic average of the individual subjectively anticipated discount factors more generally can the arrow debreu prices the risk free rates the subjectively expected socially efficient discount factors and discount rates be obtained as an average of the individual subjectively anticipated ones can beliefs dispersion be analyzed as a sort of additional risk or uncertainty leading to possibly lower discount rates is it socially efficient when diversity of opinion is taken into account to reduce the discount rate per year for more distant horizons if so what is the trajectory of the decline

declining discount rates in this paper we ask whether the us government should replace its current discounting practices with a declining discount rate schedule as the united kingdom and france have done or continue to discount the future at a constant exponential rate to address the question we briefly present the theoretical basis for a declining discount rate ddr schedule and focus on how in practice a ddr could be estimated for use by policy analysts we discuss the empirical approaches in the literature and review how the united kingdom and france estimated their ddr schedules we conclude with advice on how the united states might proceed to consider modifying its current discounting practices i the expected net present value approach to ddrs

oil price volatility and the asymmetric response of gasoline prices to oil price increases and decreases this paper analyzes the effect of volatility in oil prices on the degree of asymmetry in the response of gasoline prices to oil price increases and decreases several time series measures of the asymmetry between the responses of gasoline prices to oil price increases and decreases and several measures of the oil price volatility are constructed in all models the degree of asymmetry in gasoline prices declines with an increase in oil price volatility the results support the oligopolistic coordination theory as a likely explanation of the observed asymmetry and are not consistent with the standard search theory and the search theory with bayesian updating

rockets and feathers the asymmetric speed of adjustment of uk retail gasoline prices to cost changes abstract the paper develops a quadratic quantity adjustment model to test the hypothesis put forward in the recent monopolies and mergers commission report that the speed of adjustment of uk retail gasoline prices to cost changes is more rapid when costs rise than when they fall and that the adjustment path is more concentrated around the mean value on the upswing using data from 1982 to 1989 evidence of faster and more concentrated responses to cost increases were found

coase lecture taxes targets and the social cost of carbon in environmental economics the marginal external cost of emitting a pollutant determines the optimal abatement policy which might take the form of an emissions tax but the marginal external cost is often difficult to estimate this is especially the case when it comes to climate change estimates of the social cost of carbon scc range from around 10 per metric ton to well over 200 per metric ton and there has been little or no movement toward a consensus number partly as a result rather than an scc based carbon tax climate policy has focused on a set of targets that would put limits on temperature increases or atmospheric co2 concentrations which in turn imply targets for emission reductions economics however can tell us little about whether such targets are socially optimal i discuss the trade off between taxes versus targets as the focus of policy explain why it has been so difficult to estimate a marginal scc and suggest an approach to estimating an average scc through the use of expert elicitation i argue that such an approach could serve as the basis for a harmonized carbon tax

discounting under uncertainty disentangling the weitzman and the gollier effect the uncertainty of future economic development affects the term structure of discount rates and thus the intertemporal weights that are to be used in cost benefit analysis the u k and france have recently adopted a falling term structure to incorporate uncertainty and the u s is considering a similar step a series of publications discusses the following concern a seemingly analogous argument used to justify falling discount rates can also justify increasing discount rates we show that increasing and decreasing discount rates mean different things can coexist are created by different channels through which risk affects evaluation and have the same qualitative effect of making long term payoffs more attractive

profitability in india s organized manufacturing sector the role of technology distribution and demand using aggregate data from the annual survey of industries we analyze profitability in india s organized manufacturing sector from 1982 83 to 2012 13 over the whole period of analysis the rate of profit grew at about 1 per annum primarily driven by a rising share of profits we use visual inspection to identify five shorter run profitability regimes 1982 91 1991 96 1996 2001 2001 07 and 2007 12 profit rate decomposition analysis shows that both technological factors and aggregate demand have been important determinants of changes in profitability in these shorter periods

aggregation of heterogeneous time preferences we examine an economy whose consumers have different discount factors for utility possibly not exponential we characterize the properties of efficient allocations of resources and of the shadow prices that would decentralize such allocations we show in particular that the representative agent has a decreasing discount rate when as is usually posited all of a group s members have a constant discount rate and decreasing absolute risk aversion preferences we also identify conditions that lead the representative agent to have a rate of impatience that decreases with gross domestic product per capita

monetary valuation of the social cost of co2 emissions a critical survey an expanding branch of research has estimated the potential costs of climate change which are often expressed as the social cost of carbon scc or the costs of an additional ton of co2 emissions estimates of the scc can be used by policy makers to evaluate climate change policies and greenhouse gas emission reduction projects by means of cost benefit analyses cbas such analyses are complicated by the wide range of scc values that have been reported in the literature and the large uncertainties involved in estimating the potential economic impacts and related costs of climate change this study presents a critical review of the reported scc estimates by examining some neglected consequences of climate change uncertain and extreme scenarios of climate change the discounting of future climate change effects the treatment of individual risk aversion and assumptions about social welfare in view of the many uncertainties and omissions in conventional cost benefit analyses of climate impacts and the scc alternative approaches to decision making should be considered for climate policy

a mire of discount rates delaying conservation payment schedules in a choice experiment studies on the public s implicit discount rate in the willingness to pay for environmental amenities have mostly employed contingent valuation surveys we investigate respondents time preferences using choice experiments with four payment schedules in a split sample design in the context of mire conservation we first examine preference and taste heterogeneity among respondents finding them to a large extent independent of payment schedules next we use an endogenous approach to jointly estimate the implicit discount rates and preferences using choice experiments data we explore exponential and hyperbolic discounting model specifications we find insensitivity to the length of the payment period and support for hyperbolic discounting furthermore we provide policy relevant valuation results concerning mire conservation

why the far distant future should be discounted at its lowest possible rate abstract a critical feature of the distant future is currently unresolvable uncertainty about what will then be the appropriate rate of return on capital to use for discounting this paper shows that there is a well defined sense in which the lowest possible interest rate should be used for discounting the far distant future part of any investment project some implications are discussed for evaluating long term environmental projects or activities like measures to mitigate the possible effects of global climate change

the economics of the profit rate competition crises and historical tendencies in capitalism part 1 the profit rate the economics of the profit rate a summary definitions and measures of the profit rate part 2 competition and prices of production prices of production long term equilibrium in classical and walrasian models the classical analysis of competition convergence part 3 general disequilibrium a general disequilibrium model development of the basic model proportions and dimension in the short and long terms out of the mainstream part 4 stability and business fluctuations the real and monetary determinants of macro in stability the impact of the profit rate on the macroeconomy business fluctuations in other paradigms part 5 technology and distribution a historical perspective the historical profile of the profit rate historical tendencies accumulation and growth profitability trends part 6 history profitability and management a chronological overview the historical dynamics of capitalism

technology and distribution historical trajectories a la marx abstract in capital marx introduces a system of historical tendencies accounting for the trends of the major technological and distributional variables notably the profit rate quite distinct from the usual steady states marx s main insight is that of a difficulty to innovate it is difficult to find new processes allowing for the growth of labor productivity while not considerably reducing the productivity of capital the growth of the wage rate is stimulated by the rise of employment but the stabilization of the share of wages forbids a direct imputation of the decline of the profit rate to the excessive growth of the wage rate

competition regulation and pricing behaviour in the spanish retail gasoline market abstract the restructuring of the spanish oil industry produced a highly concentrated oligopoly in the retail gasoline market in june 1990 the spanish government introduced a system of ceiling price regulation in order to ensure that liberalization was accompanied by adequate consumer protection by 1998 prices were left to the free market this paper examines the pricing behaviour of the retail gasoline market using multivariate error correction models over the period january 1993 abolishment of the state monopoly december 2004 the results suggest that gasoline retail prices respond symmetrically to increases as well as to decreases in the spot price of gasoline both over the period of price regulation january 1993 september 1998 and over the period of free market october 1998 december 2004 however once the ceiling price regulation was abolished cooperation emerged between the government and the major operators repsol ypf and cepsa elf to control the inflation rate this resulted in a slower rate of adjustment of gasoline retail prices when gasoline spot prices went up as compared with the european pattern finally the spanish retail margin was by the end of our timing period of analysis as in the starting years after the abolishment of the state monopoly above the european average this pattern confirms our political economic hypothesis which suggests that the spanish government and the oil companies were working together in reducing the inflation in periods of rising oil and gasoline prices it is also inferred that explaining the pricing pattern in energy markets may require different hypothesis than the classical perspective involving just firms taking advantage of market power

econometric modelling in the presence of evolutionary change a methodology is offered which can be used to construct an econometric model in the presence of structural change of an evolutionary type the theoretical basis for such modelling is drawn from the self organisation approach and operationalised in the context of the logistic diffusion growth model the latter is augmented to allow for the impact of exogenous effects upon both the diffusion rate and boundary limit we show how the hypothesis of augmented logistic diffusion can be falsified using econometric methods an illustrative case study is used namely the growth and decline of australian building society deposits with the aid of this example it is shown how the approach could be of use to both economic forecasters and regulators in conditions of structural change where conventional econometric methods are often inappropriate jel classification c51 c53 e42 e47 g18 o31

discounting by committee abstract we study a dynamic social choice problem in which a sequence of committees must decide how to consume a public asset a committee convened at time t decides on consumption at t accounting for the behaviour of future committees committee members disagree about the appropriate value of the pure rate of time preference but must nevertheless reach a decision if each committee aggregates its members preferences in a utilitarian manner the collective preferences of successive committees will be time inconsistent and they will implement inefficient consumption plans if however committees decide on the level of consumption by a majoritarian vote in each period they may improve on the consumption plans implemented by utilitarian committees using a simple model we show that this occurs in empirically plausible cases application to the problem of choosing the social discount rate is discussed

declining discount rates and the fisher effect inflated past discounted future uncertain and persistent real interest rates underpin one argument for using a declining term structure of social discount rates in the expected net present value enpv framework despite being controversial this approach has influenced both the inter agency working group on cost benefit analysis and the uk government s guidelines on discounting we first clarify the theoretical basis of the enpv approach then rather than following previous work which used a single series of u s treasury bond returns we treat nominal interest rates and inflation as co integrated series and estimate the empirical term structure of discount rates via the fisher effect this nests previous empirical models and is more flexible it also addresses an irregularity in previous work which used data on nominal interest rates until 1950 and real interest rates thereafter as we show the real and nominal data have very different time series properties this paper therefore provides a robustness check on previous discounting advice and updated methodological guidance at a time when governments around the world are reviewing their guidelines on social discounting the policy implications are discussed in the context of the social cost of carbon nuclear decommissioning and public health

discounting the distant future how much do uncertain rates increase valuations abstract we demonstrate that when the future path of the discount rate is uncertain and highly correlated the distant future should be discounted at significantly lower rates than suggested by the current rate we then use two centuries of us interest rate data to quantify this effect using both random walk and mean reverting models we compute the certainty equivalent rate that summarizes the effect of uncertainty and measures the appropriate forward rate of discount in the future under the random walk model we find that the certainty equivalent rate falls continuously from 4 to 2 after 100 years 1 after 200 years and 0 5 after 300 years at horizons of 400 years the discounted value increases by a factor of over 40 000 relative to conventional discounting applied to climate change mitigation we find that incorporating discount rate uncertainty almost doubles the expected present value of mitigation benefits

how certain are we about the certainty equivalent long term social discount rate theoretical arguments for using a term structure of social discount rates sdr that declines with the time horizon have influenced government guidelines in the us and europe the certainty equivalent discount rate that often underpins this guidance embodies uncertainty in the primitives of the sdr such as growth for distant time horizons the probability distributions of these primitives are ambiguous and the certainty equivalent itself is uncertain yet if a limited set of characteristics of the unknown probability distributions can be agreed upon sharp upper and lower bounds can be defined for the certainty equivalent sdr unfortunately even with considerable agreement on these features these bounds are widely spread for horizons beyond 75 years so while estimates of the present value of intergenerational impacts including the social cost of carbon can be bounded in the presence of this ambiguity they typically remain so imprecise as to provide little practical guidance

is there an asymmetry in the response of diesel and petrol prices to crude oil price changes evidence from new zealand this paper examines how pre tax petrol and diesel prices in new zealand respond to changes in crude oil prices using an asymmetric error correction model our results show that oil companies adjust diesel prices upwards faster than they adjust them downwards and the difference is statistically significant however we find no statistical evidence for an asymmetry in the adjustment of petrol prices even though the magnitude of estimated coefficients suggests a faster response to rising prices as diesel pricing is not as competitive as petrol pricing calls for further government actions and monitoring of the oil market may be justified our findings also have important implications for the conduct of monetary policy as the pass through of crude oil price changes can affect cost push inflation

is a group of economists better than one than none can economists forecast the direction of economic growth casual observation indicates that individual economists make poor predictions of economic growth and that their forecasts are highly correlated this article discusses the loss of information resulting from correlation and develops a method of combining forecasts that are cross sectionally correlated this approach greatly increases the accuracy of near term forecasts of the direction of economic growth although the individual with the best historical performance is better over longer horizons overall when the data are properly aggregated economists predict the direction of near term economic growth and call turning points reasonably well copyright 1996 by university of chicago press

forecasting crude oil market volatility further evidence using garch class models abstract this paper extends the work of kang et al 2009 we use a greater number of linear and nonlinear generalized autoregressive conditional heteroskedasticity garch class models to capture the volatility features of two crude oil markets brent and west texas intermediate wti the one five and twenty day out of sample volatility forecasts of the garch class models are evaluated using the superior predictive ability test and with more loss functions unlike kang et al 2009 we find that no model can outperform all of the other models for either the brent or the wti market across different loss functions however in general the nonlinear garch class models which are capable of capturing long memory and or asymmetric volatility exhibit greater forecasting accuracy than the linear ones especially in volatility forecasting over longer time horizons such as five or twenty days

testing for price response asymmetries in the spanish fuel market new evidence from daily data abstract in this work we use daily data to examine pattern asymmetries in the speed of transmission of international wholesale oil prices to spanish retail fuel prices results are robust to two alternative specifications of an asymmetric error correction model for which the presence of autoregressive conditional heteroskedasticity for disturbances is modeled by a garch 1 1 process evidence indicates that the short term transmission of wholesale prices to retail prices is quite symmetric for both gasoline and diesel fuel nevertheless in contrast to some of the results provided for an earlier period we did not find asymmetries in the speed of retail price responses toward long run equilibrium our evidence also suggests that the use of weekly or lower frequency data is one of the possible explanations for some of the seemingly contradictory results concerning this issue

new evidence on asymmetric gasoline price responses in a 1997 paper borenstein cameron and gilbert bcg claim that gasoline prices rise quickly following an increase in the price of crude oil but fall slowly following a decrease this note estimates an error correction model with daily spot gasoline and crude oil price data over the period 1985 1998 and finds no evidence of asymmetry in wholesale gasoline prices the sources of the difference in results are twofold first we use the standard engle granger two step estimation procedure whereas bcg used a nonstandard estimation methodology second even using bcg s nonstandard specification the use of daily rather than weekly data yields little evidence of price asymmetry

how should the distant future be discounted when discount rates are uncertain abstract the so called weitzman gollier puzzle is the fact that two seemingly symmetric and equally plausible ways of dealing with uncertain future discount rates appear to give diametrically opposed results the puzzle is resolved when agents optimize their consumption plans the long run discount rate declines over time toward its lowest possible value

do gasoline prices respond asymmetrically in the euro zone area evidence from cointegrated panel data analysis this paper uses the generalized method of moments gmm estimation to a panel data error correction model ecm in order to measure the asymmetries in the transmission of shocks to input prices and exchange rate onto the wholesale and retail gasoline price respectively for this purpose we use an updated data set of 6369 weekly observations january 2000 to february 2011 for 11 euro zone countries the results indicate the existence of asymmetric responses in the retail and wholesale segment due to possible reasons oligopolistic structure of the refining industry existence of consumers search costs regulatory and legal barriers

determining the generalized discount rate for risky projects it is widely recognized that the evaluation of risky projects critically depends on how the riskiness of future benefits is treated standard discounting theories are based on the assumption that risks that are uncorrelated with aggregate risk are diversified so that projects idiosyncratic risk is not priced however this may not be true for long term risky projects such as those with persistent idiosyncratic shocks in this study we investigate the impact of both aggregate risk and nondiversifiable idiosyncratic risk on the discount rate for risky projects we extend the generalized discount rate to the case of persistent shocks a particular advantage of the generalized discount rate is that it can be applied in the setting of incomplete markets we show that nondiversifiable idiosyncratic risk reduces the discount rate and increases the present value of projects future uncertain benefits we further apply our findings to the evaluation of emissions reduction projects

do petrol prices rise faster than they fall when the market shows significant disequilibria abstract this paper examines if the long run relationship between retail and wholesale petrol prices is subject to adjustment asymmetric behaviour using weekly australian data 2007 2012 across 111 locations a short run dynamic model is specified in which three feedback coefficients capture three different types of disequilibria large and positive large and negative small positive negative significant evidence of asymmetric behaviour is found in 28 locations which are mainly in tasmania queensland and new south wales in these locations when prices are conspicuously above the equilibrium path retailers sluggishly lower their prices but when prices are substantially below the equilibrium values the adjustment speed is significantly faster

gamma discounters are short termist weitzman 1998 2001 proposed a simple gamma discounting method to characterize the term structure of discount rates today from the sole distribution of future spot interest rates this rule which justifies using a smaller discount rate for longer maturities is now used for long term policy evaluations in the uk france norway and potentially in the us but we show that there is no social preference within the discounted expected utility framework that generically supports this pricing model and its underlying criterion the expected net present value rule considering a standard lucas tree economy we characterize the term structure from a coherent joint distribution of future spot interest rates and future consumption levels when future growth rates are positively serially correlated efficient discount rates today are decreasing with maturity and the gamma discounting rule yields discount rates that are larger than the efficient ones

positively gamma discounting combining the opinions of experts on the social discount rate the aggregated term structure of social discount rates that results from weitzman s 2001 survey of expert opinion is shown to be highly sensitive to the nature of the responses if variation reflects irreducible differences in ethical judgments the term structure can decline rapidly if variation occurred because respondents were forecasting future rates under uncertainty the term structure is much flatter because additional experts provide new information the former approach triples the social cost of carbon when compared to the latter the distinction between heterogeneity and uncertainty illustrates the need for a nuanced treatment of survey data in intergenerational policy making

do petrol prices increase faster than they fall in market disequilibria abstract this paper tests the idea that petrol prices respond more quickly to price increases than to decreases we show that the results previously documented in the literature for australia are spurious due to failure to establish the stationarity property of the price series and the co integration relationship between retail and wholesale prices when neglecting to account for a regime shift in the data using a robust approach involving a threshold error correction model we find little evidence to support the contention that retail petrol price reverts asymmetrically to long run equilibrium asymmetric adjustments in retail prices are found only in four of the twenty eight retail gas stations in queensland these results cast doubt on the previously reported pervasiveness of this asymmetric price response phenomenon in australia we further caution on erroneous inference with the use of weekly rather than daily data and when failing to account for a regime shift in the data

a review of the stern review on the economics of climate change how much and how fast should we react to the threat of global warming the stern review argues that the damages from climate change are large and that nations should undertake sharp and immediate reductions in greenhouse gas emissions an examination of the review s radical revision of the economics of climate change finds however that it depends decisively on the assumption of a near zero time discount rate combined with a specific utility function the review s unambiguous conclusions about the need for extreme immediate action will not survive the substitution of assumptions that are consistent with today s marketplace real interest rates and savings rates

discounting the distant future how much does model selection affect the certainty equivalent rate evaluating investment with long term consequences using discount rates that decline with the time horizon declining discount rates of ddrs means that future welfare changes are of greater consequence in present value terms recent work in this area has turned towards operationalising the theory and establishing a schedule of ddrs for use in cost benefit analysis using us data we make the following points concerning this transition i model selectionhas important implications for operationalising a theory of ddrs that depends upon uncertainty ii misspecification testing naturally leads to employing models that account for changes in the interest reat generating medanism lastly we provide an analysis of the policy implications of ddrs in the context of climate change for the us and show that the use of a state space model can increase valuations by 150 compared to conventional constant discounting

the economic significance of gasoline wholesale price volatility to retailers abstract we show that gasoline retailer profits heavily depend on the direction of wholesale cost movements using a unique firm level proprietary sample of 121 u s gasoline retailers collectively operating over 4500 stores we find that it tends to be only in months when wholesale prices are declining that retailers make meaningfully positive profits and that in spite of the low profits earned when wholesale prices are increasing over the entire wholesale price cycle volatility is preferred by retailers to relatively stable wholesale prices we are the first to our knowledge to link asymmetric price responses directly to firm profits and characterize the economic significance of asymmetric pricing in the retail gasoline industry our findings may have important implications for the scores of other industries where asymmetric retail to wholesale price responses are found

steady change the 200 largest us manufacturing firms throughout the 20th century this paper discusses the existence of structural change in business activity and technological competence among the 200 largest us manufacturing companies throughout the 20th century the data were taken from chandler scale and scope 1990 and fortune magazine the analysis of corporate evolution in used to assess continuity versus turbulence of business organizations in the context of the neo schumpeterian long wave hypothesis the empirical results show that the giants of the late 20th century are not the same as those at the beginning of that period persistence in the sample is very limited moreover turbulence is not smooth but rather occurs by impulses that affect specific industries and it has increased over time overall the pattern of corporate entry and industry development is very indicative of the new opportunities emerging with information and communication technologies this process of open ended continuous transformation supports the case for putting change at the centre of economic analysis