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Multiple Perspectives in Risk and Risk Management pp 243–260Cite as

The Gains and Losses Puzzle in Discounting for Long-Term Investments: Reinterpreting Ramsey Approach for Intergenerational Perspective

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Abstract

In the appraisal of intergenerational public investments due to their extraordinary long life-cycle special attention must be given to the value of discount rate that influences greatly the net present value of a project in appraisal procedures. Of tremendous importance is the issue of including uncertainty via discounting due to the fact that intergenerational investments face high uncertainty which is coupled with the lack of unambivalent theoretical foundations and variety of empirical estimations of discount rates. The paper contributes to the discussion of social discount rate based on the Ramsey formula in the context of intergenerational allocations as well as discrepancies in treatment of costs and benefits from individual and social perspective. The reconstructed social discount rate formula that is proposed in the paper differentiates: firstly, between intra- and intergenerational frame due to discontinuity between generations, and secondly, between project’s costs and benefits owing to opposite signs of risk premia and the differences in gains and losses valuation.

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Authors and Affiliations

  1. University of Economics in Katowice, ul. 1 Maja 50, 40-287, Katowice, Poland

    Monika Foltyn-Zarychta

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  1. Monika Foltyn-Zarychta
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Correspondence to Monika Foltyn-Zarychta .

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Editors and Affiliations

  1. The York Management School, The University of York, York, UK

    Philip Linsley

  2. Newcastle Business School, Faculty of Business and Law, Northumbria University, Newcastle upon Tyne, UK

    Philip Shrives

  3. Faculty of Finance and Insurance, University of Economics in Katowice, Katowice, Poland

    Monika Wieczorek-Kosmala

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Foltyn-Zarychta, M. (2019). The Gains and Losses Puzzle in Discounting for Long-Term Investments: Reinterpreting Ramsey Approach for Intergenerational Perspective. In: Linsley, P., Shrives, P., Wieczorek-Kosmala, M. (eds) Multiple Perspectives in Risk and Risk Management. Springer Proceedings in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-030-16045-6_12

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