Optimal Rotation under Continually – or Continuously – Declining Discount Rate

It has been argued from a number of perspectives that the discount rate might decline with increasing period of discounting. With a stepped profile of decline, financially optimal rotations are quite likely to occur at a few discrete ages. For any form of declining discount rate, successor rotations will lengthen, and this will affect the optimal length of earlier rotations. But if rotation length is reassessed periodically, successor rotations will be adjusted downwards from those deemed optimal by a prior generation – a standard problem of dynamic inconsistency. This adjusted sequence of rotations will be deemed by the original decision makers to be less valuable than a sequence of lengthening rotations, and this may affect their own choice of optimal rotation. Whether, and how much, adjustment is appropriate, depends on the reasons underlying the decline of discount rates.