Last updated:
November 2nd, 2011

Erik Kempe Award 2011

The 2011 Erik Kempe Award has been awarded to Christian Gollier and Martin L. Weitzman for their study
“How Should the Distant Future be Discounted when Discount Rates are Uncertain"
published in Economics Letters 107, 250-253, 2010.
Pictures of the Erik Kempe Lecture 2010

Christian Gollier	Martin L. Weitzman

The Nomination Committee, composed by Thomas Aronsson (chair), Erwin Bulte and Karine Nyborg, has awarded this paper for the following motivation:

In the study of cost benefit analysis, discounting allows effects occurring at different points in time to be compared, and the choice of an appropriate discount rate is one of the most critical issues in economics. This is particularly the case for projects and policies with a very long time-horizon, such as those associated with climate change, where today's actions may affect the welfare of human beings in the distant future. Seemingly insignificant changes in discount rates may have very large effects on the present value of future benefits and/or costs and, therefore, also on the weight that today's decision-makers attach to the welfare of future generations.
Christian Gollier and Martin L. Weitzman receive the Erik Kempe Award for their contribution to cost benefit analysis when future long-run discount rates are uncertain, by showing that the future should be discounted at a declining rate, which is higher for entities in the near future and smaller for entities in the distant future, and which gradually approaches its lowest possible value. Uncertainty about the future is a fundamental aspect of real world market economies, and policy-decisions with implications for future welfare must typically be made subject to uncertainty about future long-run discount rates. Gollier and Weitzman's contribution, being compact and exceptionally well-written, provides a theoretically stringent principle for dealing with such uncertainty, which is important for our understanding of cost benefit analysis in general, as well as of clear practical relevance for the area of environmental economics in particular where many decision-problems are characterized by a long time-horizon. As such, they have contributed both to the academic literature on cost benefit analysis, by showing how uncertainty with respect to future discount rates might be dealt with, and by providing insights of particular relevance for evaluating policies to combat the climate problem.

Erik Kempe Lecture 2010 - Pictures