Extending the Ramsey Rule to an Uncertain Economic Growth
Extending the Ramsey Rule to an Uncertain Economic Growth
This chapter considers the prospect of uncertainty in planning for the future. In fact, it is commonly accepted that individuals are ready to sacrifice more in the present for the future when this future becomes more uncertain. Keynes was the first to mention this idea by pointing out the precautionary motive for saving. What is desirable at the individual level is also desirable at the collective one. Thus the chapter argues that a society that wants to reinforce the incentive to invest for the future because of its uncertain nature should select a smaller discount rate to evaluate the set of all possible investment projects.
Keywords: uncertain economic growth, uncertainty, future planning, saving, possible investments
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