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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
Date of revision:
Handle: RePEc:pra:mprapa:8812
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  1. Chichilnisky, Graciela, 1995. "An axiomatic approach to sustainable development," MPRA Paper 8609, University Library of Munich, Germany.
  2. Chichilnisky, Graciela, 1996. "Markets with endogenous uncertainty: theory and policy," MPRA Paper 8612, University Library of Munich, Germany.
  3. Graciela Chichilnisky & Geoffrey Heal, 1993. "Who Should Abate Carbon Emissions? An International Viewpoint," NBER Working Papers 4425, National Bureau of Economic Research, Inc.
  4. Chichilnisky, Graciela, 1995. "The economic value of the Earth's resources," MPRA Paper 8491, University Library of Munich, Germany.
  5. Cass, David & Chichilnisky, Graciela & Wu, Ho-Mou, 1996. "Individual Risk and Mutual Insurance," Econometrica, Econometric Society, vol. 64(2), pages 333-41, March.
  6. Avinash Dixit, 1992. "Investment and Hysteresis," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 107-132, Winter.
  7. Graciela Chichilnisky & Geoffrey Heal, 1993. "Global Environmental Risks," Journal of Economic Perspectives, American Economic Association, vol. 7(4), pages 65-86, Fall.
  8. Pindyck, Robert, 1989. "Irreversibility, uncertainty, and investment," Policy Research Working Paper Series 294, The World Bank.
  9. Heal, Geoffrey, 1992. "International negotiations on emission control," Structural Change and Economic Dynamics, Elsevier, vol. 3(2), pages 223-240, December.
  10. Graciela Chichilnisky, 1997. "What Is Sustainable Development?," Land Economics, University of Wisconsin Press, vol. 73(4), pages 467-491.
  11. Malinvaud, E., 1972. "The allocation of individual risks in large markets," Journal of Economic Theory, Elsevier, vol. 4(2), pages 312-328, April.
  12. Mark J Machina, 1982. ""Expected Utility" Analysis without the Independence Axiom," Levine's Working Paper Archive 7650, David K. Levine.
  13. Chichilnisky, G. & Wu, H.M., 1992. "Financial Innovation and Endogenous Uncertainty in Incomplete Asset Markets," Papers 92-30, Columbia - Graduate School of Business.
  14. Malinvaud, E, 1973. "Markets for an Exchange Economy with Individual Risks," Econometrica, Econometric Society, vol. 41(3), pages 383-410, May.
  15. 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.
  16. Chichilnisky, G. & Heal, G. M. & Tsomocos, D. P., 1995. "Option values and endogenous uncertainty in ESOPs, MBOs and asset-backed loans," Economics Letters, Elsevier, vol. 48(3-4), pages 379-388, June.
  17. Chichilnisky, G. & Heal, G. & Streufert, P.A. & Swinkels, J.M., 1992. "Believing in Multiple Equilibria," Papers 92-32, Columbia - Graduate School of Business.
  18. Graciela Chichilnisky, 2009. "Catastrophic risks," International Journal of Green Economics, Inderscience Enterprises Ltd, vol. 3(2), pages 130-141.
  19. Hahn, F., 1992. "A Remark on Incomplete Market Equilibrium," Papers 179, Cambridge - Risk, Information & Quantity Signals.
  20. 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.
  21. Loewenstein, George & Thaler, Richard H, 1989. "Intertemporal Choice," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 181-93, Fall.
  22. 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.
  23. Chichilnisky, Graciela & Heal, Geoffrey, 1995. "Markets with tradable CO2 emission quotas: principles and practice," MPRA Paper 8486, University Library of Munich, Germany.
  24. 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.
  25. Chichilnisky, Graciela, 1994. "North-South Trade and the Global Environment," American Economic Review, American Economic Association, vol. 84(4), pages 851-74, September.
  26. 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.
  27. Chichilnisky, Graciela, 1996. "The Future of Global Reinsurance," MPRA Paper 8334, University Library of Munich, Germany.
  28. 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.
  29. 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.
  30. Chichilnisky, Graciela, 1996. "Financial Innovation in Property Catastrophe Reinsurance: The Convergence of Insurance and Capital Markets," MPRA Paper 8333, University Library of Munich, Germany.
  31. Chichilnisky, Graciela & Beltratti, Andrea & Heal, Geoffrey, 1998. "Uncertain future preferences and conservation," MPRA Paper 7912, University Library of Munich, Germany.
  32. Stein, Jerome L, 1992. "Price Discovery Processes," The Economic Record, The Economic Society of Australia, vol. 0(0), pages 34-45, Supplemen.
  33. William R. Cline, 1992. "Economics of Global Warming, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 39.
  34. 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.
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