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Accounting for Different Uncertainties: Implications for Climate Investments?

  • Svenja Hector

    (ETH Zurich Department of Management, Technology and Economics)

Registered author(s):

    The paper clarifies the link between changes in risk aversion and the effect on the consumption discount rate. In a general framework that can cope with various forms of uncertainty, it is shown that the response of the consumption discount rate to a change in risk aversion depends on some fundamental properties of the considered uncertainties. The application of this general result to specific forms of uncertainty extends existing results to more general forms of risk and yields a new result on preference uncertainty.

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    File URL: http://www.feem.it/userfiles/attach/2014181126454NDL2013-107.pdf
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    Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2013.107.

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    Date of creation: Dec 2013
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    Handle: RePEc:fem:femwpa:2013.107
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    16. repec:hal:journl:hal-00267891 is not listed on IDEAS
    17. Chichilnisky, Graciela & Beltratti, Andrea & Heal, Geoffrey, 1998. "Uncertain future preferences and conservation," MPRA Paper 7912, University Library of Munich, Germany.
    18. DREZE, Jacques H. & MODIGLIANI, Franco, . "Cosumption decisions under uncertainty," CORE Discussion Papers RP 119, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    19. Alain Ayong Le Kama, 2012. "Preservation and Endogenous Uncertain Future Preferences," Working Papers 1204, Chaire Economie du Climat.
    20. Yongyang Cai & Kenneth L. Judd & Thomas S. Lontzek, 2013. "The Social Cost of Stochastic and Irreversible Climate Change," NBER Working Papers 18704, National Bureau of Economic Research, Inc.
    21. Epaulard, Anne & Pommeret, Aude, 2003. "Optimally eating a stochastic cake: a recursive utility approach," Resource and Energy Economics, Elsevier, vol. 25(2), pages 129-139, May.
    22. Selden, Larry, 1978. "A New Representation of Preferences over "Certain A Uncertain" Consumption Pairs: The "Ordinal Certainty Equivalent" Hypothesis," Econometrica, Econometric Society, vol. 46(5), pages 1045-60, September.
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    25. Chew, Soo Hong & Epstein, Larry G., 1990. "Nonexpected utility preferences in a temporal framework with an application to consumption-savings behaviour," Journal of Economic Theory, Elsevier, vol. 50(1), pages 54-81, February.
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