Time Horizon and the Discount Rate

We consider an economy à la Lucas (1978, Econometrica46 , 1429-1446) with a risk-averse representative agent. The exogenous growth rate of the economy follows a random walk. We characterize the set of utility functions for which it is efficient to discount more distant cash flows at a lower rate. The benchmark result is that, when the growth rate is almost surely nonnegative, the yield curve is decreasing if and only if relative risk aversion is decreasing with wealth. Relaxing the assumption on the absence of recession requires more restrictions on preferences, such as increasing relative prudence. Journal of Economic Literature Classification Numbers: D81, D91, Q25, Q28.     

Time and Space in Strategy Discourse: Implications for Intertemporal Choice

Research summary : When describing the future, executives draw analogies between time and space (“we are on the right path,” “the deadline is approaching”). These analogies shape how executives construe the future and influence attitudes to action with long‐term benefits but short‐term costs. Ego‐moving frames (“we are approaching the future”) prompt a focus on the present, whereas time‐moving frames (“the future is approaching”) underscore the advent of the future as inevitable. Ultimately, action that prioritizes long‐term returns depends both on how executives conceive of the future and whether they believe they can engender favorable outcomes. This balance between recognizing the inevitability of the future (time‐moving frame) and the capacity to shape outcomes (control beliefs) stands in contrast to the more agentic forms of discourse that are dominant in strategy . Managerial summary : Executives often prioritize maximizing immediate returns over investing to build a long‐term competitive advantage. How they think about the future offers one explanation for this short‐termism. This article distinguishes two ways of framing the future with implications for decision‐making. Are we approaching the future (the ego‐moving frame) or is it approaching us (the time‐moving frame)? As long as executives have confidence in their ability to achieve forecasted results, they focus on long‐term returns in their decision‐making when they recognize the advent of the future as inevitable (the time‐moving frame). In contrast, though executives use the ego‐moving frame to show that they are active agents, they weigh future returns less heavily when framing the future in this way . Copyright © 2017 John Wiley & Sons, Ltd.     

Market Valuation,Pension Fund Policy and Contribution Volatility

Summary Market valuation is becoming more and more popular, both in accounting and regulation, as well as in academic circles. For pension funds and their participants, the knowledge that market-valued pension liabilities can indeed be transferred to a third party, if necessary, is a great virtue. Using a simulation model, this paper demonstrates the implicit costs and benefits of using market valuation for a typical Dutch pension fund, which offers a guaranteed average pay nominal pension with conditional indexation. The impact turns out to be fairly small, if fixed discount rates are still used for conditional rights. However, if market valuation is used for both unconditional and conditional rights, contribution volatility increases significantly. A remedy is to increase the duration of assets considerably. It is not clear, though, whether this option is available for large pension funds given the limited supply of long-term bonds. This paper benefited from discussions at seminars at DNB, PVK, ABP and CPB. We are grateful to Jan-Marc Berk, Dirk Broeders, and Peter van Els for useful suggestions and comments on a previous version of the paper. Views expressed are those of the authors and do not necessarily reflect official positions of De Nederlandsche Bank.     

应收账款保理与贴现的比较研究

应收账款保理与贴现是应收账款融资的两大重要手段,能有效缓解企业短期资金压力,改善信贷结构和资产质量。两者在内涵、业务种类与范围、法律关系、业务流程、融资成本与风险、会计处理方式等方面都存在不同程度的差异。     

Beyond Time Discounting

The intertemporal tradeoffs made by most persons appear inconsistent when viewed through the lens of the standard time-discounting model. At different times and in different decision contexts, the same individual will often display behavior suggestive of a wide range of discount rates, from strongly positive (indicative of a lack of concern of future consequences) to strongly negative (implying greater concern for the future than the present). We argue that many of these apparent inconsistencies can be attributed to three aspects of time preference that are not part of the conventional model: decreasing impatience, a preference for sequences of outcomes that improve over time, and preference interactions between consumption and payments.     

The use of multi-criteria decision-making methods in the integrated assessment of climate change: implications for IA practitioners

Integrated assessment (IA) considers interactions of physical, biological, and human systems in order to assess long-term consequences of environmental and energy policies such as limits on greenhouse gas emissions, and other strategies to negate climate change. Users of IA face the daunting task of interpreting large amounts of data and uncertainties. Multi-criteria decision-making (MCDM) methods can help users process IA data, understand policy tradeoffs, and learn how their value judgments affect decisions. We held a workshop during which climate change experts tested several MCDM methods for using IA outputs to rank hypothetical policies for abating greenhouse gas emissions. Participants also evaluated several methods for visualizing tradeoffs under both certainty and uncertainty cases. This paper explores potential roles for MCDM in IA identified during the workshop, along with implications for IA design and implementation. We summarize the workshops’ results regarding intertemporal discounting (a type of MCDM weighting judgment), visualization of impacts, how MCDM methods can help users to incorporate their background knowledge, and how MCDM can improve understanding of tradeoffs and the importance of value judgments. A key result is that the interest rates IA experts recommend for discounting future impacts depend strongly on what type of impact is being discounted, as well as upon the exact phrasing of questions used to elicit rates from the experts.     

地方政府投资中的冲动与拖延——中国经济过热的一个行为经济学解释

我国地方政府由于任期制等原因而形成"短视"认知偏差,过分注重项目的短期收益状况,从而会表现出对能带来大量即期收益的"政绩工程"类项目的投资冲动和对需要大量即期成本支付的环保类项目的投资拖延。以此可以部分地解析地方政府过度投资在我国历次经济过热中的作用机制。绿色GDP的提倡和一票否决制度作为中央政府对地方政府投资的反偏差干预手段,也可在此框架内得到统一的逻辑解释。     

The pricing of initial audit engagements by big 4 and leading mid-tier auditors

The recent investigation of the UK audit market by the Competition Commission testifies to perennial regulatory concerns regarding increasing supplier concentration, big 4 dominance of large company audits and the capacity of mid-tier auditors to compete. Against this backdrop, this paper presents new evidence on whether there is competitive pricing for initial audit engagements by big 4 auditors relative to their next four largest mid-tier (mid 4) counterparts for the UK quoted and private corporate sectors. Based on data from FAME for 2007 and 2010, the evidence indicates that larger quoted companies switching between the big 4 benefit from substantial discounts, with smaller discounts attracted by clients switching to the mid 4. Coupled with evidence that fees for both audit and non-audit services recover in subsequent periods, and consistent with the theoretical framework, the paper concludes that big 4 discounting is a competitive outcome aimed at securing future economic rents. New evidence demonstrates that smaller clients switching to big 4 or mid 4 auditors do not benefit from low-balling.     

Discounting models for outcomes over continuous time

Events that occur over a period of time can be described either as sequences of outcomes at discrete times or as functions of outcomes in an interval of time. This paper presents discounting models for events of the latter type. Conditions on preferences are shown to be satisfied if and only if the preferences are represented by a function that is an integral of a discounting function times a scale defined on outcomes at instants of time.