Seminar

On Multiple Discount Rates

Federico Echenique (California Institute of Technology)

March 28, 2017, 11:00–12:30

Toulouse

Room MS 001

Economic Theory Seminar

Abstract

Disagreements over long-term projects can often be traced to assumptions about the discount rate. The debate in economics over climate change is a case in point. We propose a theory of intertemporal choice that is robust to specific assumptions on the discount rate. Our discussion is centered around three models: The PARETO model requires that one util- ity stream be chosen over another if and only if its discounted value is higher for all discount factors in a set of possible factors. The UTILITAR- IAN model focuses on an average discount factor. The MAXMIN model evaluates a flow by the lowest available discounted value. We propose these models as robust decision criteria for intertemporal choice, investigate their properties, and break them down axiomatically.