Re: poly: Re: Why interest rates may stay low

Damien S. writes:
>> >>.. suggests investors don't anticipate such huge future returns. ...
>> >That investors expect to be dead before such returns materialize? ...
>> I don't understand the relevance of this.
>A payoff of a large fraction of the universe some centuries down the road
>doesn't have much appeal to people who'll be dead within the next one.

Though they rarely do, it is feasible for corporations to outlive
any of their employees or owners. Older owners at some point sell their
stock to younger owners, and employees retire to be replaced by younger
employees. All that should matter is the rate of return expected and the
risk associated with this return; given these, how long the return takes
shouldn't matter much. People buy bonds that pay off in 50 years now
without a problem; they expect to sell them to someone else long before
maturity.

>> >That the uncertainties associated with environmental problems, ...
>> This seems equivalent to saying there's a low chance of realizing large returns.
>
>Yes, but in a different way than I understood you to be saying. I thought
>your "don't anticipate" in the first line of this letter implied "they think
>this stuff won't work". I was suggesting "it will work for somebody, but it
>will probably be taken away from us if we try".

It seems there are just two explainations for investors apparently passing on
projects to grab the universe:
1) Investors don't think its likely the rate of return will ever be huge.
2) There aren't targeted property rights one could own now that would give a
   big advantage to future grab projects. This can be because of expectations
   of government interference, or more likely because of expectations that most
   money spent in such future grabs will be spend on technology that hasn't yet
   been invented yet. Without property rights in future technogies, all you
   can do is get rich and wait for the right moment to spend your riches on the
   lastest grabbing toys.

Robin Hanson
hanson@econ.berkeley.edu http://hanson.berkeley.edu/
RWJF Health Policy Scholar, Sch. of Public Health 510-643-1884
140 Warren Hall, UC Berkeley, CA 94720-7360 FAX: 510-643-8614
Received on Tue Mar 24 23:18:04 1998