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The economics of global environmental risk

  • Chichilnisky, Graciela

This chapter focusses on global environmental risks such as climate change, an issue that must be confronted as we move into the future. It proposes sound principles of risk management that make sense in today's society generally, going beyond their role of averting and hedging climate risks. This chapter is about these and related questions. In attempting to answer them, it deals with different aspects of the theory of risk-bearing. I explain current responses to global change, focusing on the new challenges: human-induced or endogenous risks, including potentially catastrophic risks, which are not adequately treated by traditional economic analysis. In summary, we are dealing with risks that have two major new characteristics: they are endogenous and potentially catastrophic. In addition, climate risks have three more conventional features: they are poorly understood, correlated and irreversible. In all cases, this chapter proposes ways to advance our understanding of the problems. This chapter proposes ways to evaluate decisions under endogenous and potentially catastrophic risks, and incorporates often neglected features of correlated, poorly understood and irreversible risks. The analysis proposed here opens new ways of thinking and at the same time poses new challenges. At the end I indicate new areas of research.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8812.

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Date of creation: 1998
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Handle: RePEc:pra:mprapa:8812
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  1. Pindyck, Robert S., 1990. "Irreversibility, uncertainty, and investment," Working papers 3137-90., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  2. Chichilnisky, Graciela, 1996. "The Future of Global Reinsurance," MPRA Paper 8334, University Library of Munich, Germany.
  3. Chichilnisky, G. & Wu, H.M., 1992. "Financial Innovation and Endogenous Uncertainty in Incomplete Asset Markets," Papers 92-30, Columbia - Graduate School of Business.
  4. Chichilnisky, Graciela & Heal, Geoffrey, 1994. "Who should abate carbon emissions? : An international viewpoint," Economics Letters, Elsevier, vol. 44(4), pages 443-449, April.
  5. Fudenberg, Drew & Holmstrom, Bengt & Milgrom, Paul, 1990. "Short-term contracts and long-term agency relationships," Journal of Economic Theory, Elsevier, vol. 51(1), pages 1-31, June.
  6. Malinvaud, E, 1973. "Markets for an Exchange Economy with Individual Risks," Econometrica, Econometric Society, vol. 41(3), pages 383-410, May.
  7. Chichilnisky, Graciela, 1995. "An axiomatic approach to sustainable development," MPRA Paper 8609, University Library of Munich, Germany.
  8. Chichilnisky, G. & Heal, G. & Tsomocos, D.P., 1994. "Option Values and Endogenous Uncertainty in ESOPS, MBOS and Asset-Backed Loans," Papers 94-01, Columbia - Graduate School of Business.
  9. Chichilnisky, Graciela & Beltratti, Andrea & Heal, Geoffrey, 1998. "Uncertain future preferences and conservation," MPRA Paper 7912, University Library of Munich, Germany.
  10. Machina, Mark J, 1982. ""Expected Utility" Analysis without the Independence Axiom," Econometrica, Econometric Society, vol. 50(2), pages 277-323, March.
  11. Chichilnisky, Graciela, 1996. "Financial Innovation in Property Catastrophe Reinsurance: The Convergence of Insurance and Capital Markets," MPRA Paper 8333, University Library of Munich, Germany.
  12. Chichilnisky, Graciela, 1996. "Markets with endogenous uncertainty: theory and policy," MPRA Paper 8612, University Library of Munich, Germany.
  13. Avinash Dixit, 1992. "Investment and Hysteresis," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 107-132, Winter.
  14. Loewenstein, George & Thaler, Richard H, 1989. "Intertemporal Choice," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 181-93, Fall.
  15. Graciela Chichilnisky & Geoffrey Heal, 1993. "Global Environmental Risks," Journal of Economic Perspectives, American Economic Association, vol. 7(4), pages 65-86, Fall.
  16. Cicchetti, Charles J & Freeman, A Myrick, III, 1971. "Option Demand and Consumer Surplus: Further Comment," The Quarterly Journal of Economics, MIT Press, vol. 85(3), pages 528-39, August.
  17. Graciela Chichilnisky, 1997. "What Is Sustainable Development?," Land Economics, University of Wisconsin Press, vol. 73(4), pages 467-491.
  18. Chichilnisky, Graciela, 1994. "North-South Trade and the Global Environment," American Economic Review, American Economic Association, vol. 84(4), pages 851-74, September.
  19. Graciela Chichilnisky, 2009. "Catastrophic risks," International Journal of Green Economics, Inderscience Enterprises Ltd, vol. 3(2), pages 130-141.
  20. Chichilnisky, G. & Heal, G. & Strueffer, P.A. & Swinkels, J.M., 1993. "Beleiving in Multiple Equilibria," Discussion Papers 1993_22, Columbia University, Department of Economics.
  21. Malinvaud, E., 1972. "The allocation of individual risks in large markets," Journal of Economic Theory, Elsevier, vol. 4(2), pages 312-328, April.
  22. Wise, Sherry & Johnson, Stanley R. & Just, Richard E. & Bockstael, Nancy, 1991. "Commodity and Resource Policies in Agricultural Systems," Staff General Research Papers 396, Iowa State University, Department of Economics.
  23. Stein, Jerome L, 1992. "Price Discovery Processes," The Economic Record, The Economic Society of Australia, vol. 0(0), pages 34-45, Supplemen.
  24. Chichilnisky, Graciela & Heal, Geoffrey, 1995. "Markets with tradable CO2 emission quotas: principles and practice," MPRA Paper 8486, University Library of Munich, Germany.
  25. Arrow, Kenneth J & Fisher, Anthony C, 1974. "Environmental Preservation, Uncertainty, and Irreversibility," The Quarterly Journal of Economics, MIT Press, vol. 88(2), pages 312-19, May.
  26. Heal, Geoffrey, 1992. "International negotiations on emission control," Structural Change and Economic Dynamics, Elsevier, vol. 3(2), pages 223-240, December.
  27. William R. Cline, 1992. "Economics of Global Warming, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 39, December.
  28. Hahn, F., 1992. "A Remark on Incomplete Market Equilibrium," Papers 179, Cambridge - Risk, Information & Quantity Signals.
  29. Stein, Jerome L, 1992. "Cobwebs, Rational Expectations and Futures Markets," The Review of Economics and Statistics, MIT Press, vol. 74(1), pages 127-34, February.
  30. Chichilnisky, Graciela & Heal, Geoffrey, 1996. "On the existence and the structure of the pseudo-equilibrium manifold," Journal of Mathematical Economics, Elsevier, vol. 26(2), pages 171-186.
  31. Chichilnisky, Graciela, 1995. "The economic value of the Earth's resources," MPRA Paper 8491, University Library of Munich, Germany.
  32. Chichilnisky Graciela & Heal Geoffrey M., 1993. "Competitive Equilibrium in Sobolev Spaces without Bounds on Short Sales," Journal of Economic Theory, Elsevier, vol. 59(2), pages 364-384, April.
  33. Fisher, Anthony C. & Krutilla, John V., 1985. "Economics of nature preservation," Handbook of Natural Resource and Energy Economics, in: A. V. Kneeseā€  & J. L. Sweeney (ed.), Handbook of Natural Resource and Energy Economics, edition 1, volume 1, chapter 4, pages 165-189 Elsevier.
  34. Cass, David & Chichilnisky, Graciela & Wu, Ho-Mou, 1996. "Individual Risk and Mutual Insurance," Econometrica, Econometric Society, vol. 64(2), pages 333-41, March.
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