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Lutz Hendricks - One of the best experts on this subject based on the ideXlab platform.
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how important is Discount Rate heterogeneity for wealth inequality
Journal of Economic Dynamics and Control, 2007Co-Authors: Lutz HendricksAbstract:Abstract This paper investigates the role of Discount Rate heterogeneity for wealth inequality. The key idea is to infer the distribution of preference parameters from the observed age profile of wealth inequality. The contribution of preference heterogeneity to wealth inequality can then be measured using a quantitative life-cycle model. I find that Discount Rate heterogeneity increases the Gini coefficient of wealth by around 0.07 to levels that are close to the data. The share of wealth held by the richest 1% of households rises by around 0.04, but falls short of the data by more than 10 percentage points. Discount Rate heterogeneity also helps to account for the large wealth inequality observed among households with similar lifetime earnings.
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how important is Discount Rate heterogeneity for wealth inequality
2005Co-Authors: Lutz HendricksAbstract:This paper investigates the role of Discount Rate heterogeneity for wealth inequality. The key idea is to infer the distribution of preference parameters from the observed age profile of wealth inequality. The contribution of preference heterogeneity to wealth inequality can then be measured using a quantitative life-cycle model. I find that Discount Rate heterogeneity increases the Gini coefficient of wealth by 0.06 to 0.11. The share of wealth held by the richest 1% of households rises by 0.03 to 0.13. The larger changes occur when altruistic bequests are large and when preferences are strongly persistent across generations. Discount Rate heterogeneity also helps account for the large wealth inequality observed among households with similar lifetime earnings.
John Leahy - One of the best experts on this subject based on the ideXlab platform.
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the social Discount Rate
Journal of Political Economy, 2004Co-Authors: Andrew Caplin, John LeahyAbstract:What Discount Rate should be applied to social investments? It is standard to use the market interest Rate, thereby respecting private preferences. We show that application of this “revealed preference” criterion rests on faith, not on logic. It is justified only if preferences over all choices, including past choices, are time invariant. The conditions for this to be true are stringent. Under more reasonable conditions, policy makers should be more patient than private citizens, whose choices define the most short‐sighted Pareto optimum.
Clotilde Napp - One of the best experts on this subject based on the ideXlab platform.
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Properties of the Social Discount Rate in a Benthamite Framework with Heterogeneous Degrees of Impatience
Management Science, 2008Co-Authors: Diego Nocetti, Elyès Jouini, Clotilde NappAbstract:This paper derives the properties of the Discount Rate that should be applied to a public-sector project when the affected population has heterogeneous degrees of impatience. We show that, for any distribution of Discount Rates, the social Discount Rate has the following properties: it decreases over time, it is lower than the average of the Discount Rates in the population, and it converges to the Discount Rate of the most patient individual in the economy. These properties hold for both constant and decreasing individual Discount Rates. Finally, we evaluate how changes in the distribution of individual Discount Rates affect the social Discount Rate.
Erdem Seçilmiş - One of the best experts on this subject based on the ideXlab platform.
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Estimation of a social Discount Rate for Turkey
Socio-economic Planning Sciences, 2019Co-Authors: Hale Akbulut, Erdem SeçilmişAbstract:Abstract Cost-benefit analysis is probably the most comprehensive method of economic evaluation for public projects. Social Discount Rate, which makes it possible to compare the social benefits and costs extended over a period of time, has a key role in the allocation of public resources between alternative ends via cost-benefit analysis. Public sector needs to use the correct social Discount Rate in order to achieve a fair allocation of the fiscal burden between generations. While a high social Discount Rate may place a heavy fiscal burden on future generations, a low social Discount Rate may cause unfeasible projects to be approved. However, although social Discount Rate is a crucial parameter for public project appraisals, there is a lack of updated social Discount Rate for Turkey. In this study, the social Rate of time preference approach is used to estimate this social Discount Rate. To this aim, both the personal taxation and the food demand methods are employed in order to estimate the elasticity of the marginal utility of consumption, which is a critical determinant of the social Rate of time preference based on the Ramsey formula. The overall results show that the social Discount Rate estimated using the personal tax method is 4.88%, whereas it is 4.41% using the food demand method. Since the level of tax evasion is very high in Turkey, we recommend that the value indicated by the food demand method should be used employing the autoregressive distributed lag cointegration procedure.
William J Bertin - One of the best experts on this subject based on the ideXlab platform.
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the implication of Discount Rate changes for market timing
Review of Financial Economics, 1998Co-Authors: Laurie Prather, William J BertinAbstract:Abstract This study implements and tests a market timing trading rule using the public information contained in Discount Rate changes as signals to enter or exit the stock market. The trading rule entails entering the market on an initial Discount Rate cut and remaining fully invested through any subsequent cuts. Alternatively, an initial Discount Rate increase signals an exit from the market and remaining out of the market through any subsequent increases. It is presumed that short-term Treasury instruments are held in out-market periods. We test and report the results of this market timing stRategy in comparison to a benchmark buy-and-hold stRategy through the use of various investment performance measures. Analysis of ex-post returns indicates that the market timing trading rule produces higher risk-adjusted returns than a buy-and-hold-the-market stRategy. Even without a risk adjustment, the returns of the stRategy exceed those of the passive buy-and-hold stRategy in the three subperiods analyzed. The stRategy's predictive accuracy for timing the market clearly exceeds the minimum predictive accuracy suggested by earlier market timing literature. Finally, the results of the statistical analysis indicate that the stRategy is successful in outguessing the market as defined in the classical Treynor and Mazuy illustration.
