Discount rate/Tutorials: Difference between revisions
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where: | where: | ||
:δ is the pure time preference rate (the | :δ is the pure time preference rate (otherwise known as the utility discount rate); | ||
:η is the elasticity of marginal utility with respect to consumption; and, | :η is the elasticity of marginal utility with respect to consumption; and, | ||
:g is the expected future growth rate of consumption. | :g is the expected future growth rate of consumption. | ||
Revision as of 07:05, 24 August 2008
The Ramsey equation
The social time preference rate, s, is given by:-
- s = δ + ηg
where:
- δ is the pure time preference rate (otherwise known as the utility discount rate);
- η is the elasticity of marginal utility with respect to consumption; and,
- g is the expected future growth rate of consumption.