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A Review of Long-Run Discounting: Evidence from Housing Markets

Stefano Giglio*,
University of Chicago

Matteo Maggiori#,
Harvard University, Cambridge

We review the work of Giglio, Maggiori and Stroebel (2015, 2016) and Giglio, Maggiori, Stroebel and Weber (2015). They explore how households trade-off immediate costs and uncertain future benefits that occur in the very long run. They exploit a unique feature of housing markets in the U.K. and Singapore, where residential property ownership takes the form of either leaseholds or freeholds. GMS15 find that households discount very long-run housing cash flows at low rates. GMS16 develop a test for rational bubbles and rule out their presence.GMSW15 bring this setup to bear on the debate regarding climate change abatement investments.

[JEL Classification:E44; G02; G12; G14; R30].

Keywords: asset pricing; real estate; rational bubbles; climate change; declining discount rates.

stefano.giglio@chicagobooth.edu, Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR).
maggiori@fas.harvard.edu, National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR).

We are particularly indebted to Johannes Stroebel, our co-author on all the papers reviewed in this article, and to Andreas Weber, our co-author on one of the papers reviewed in this article. We would also like to thank Daron Acemoglu, Robert Barro, John Campbell, Michael Greenstone, Andrei Shleifer, Jeremy Stein, and Luigi Zingales.