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Accounting for Different Uncertainties: Implications for Climate Investments?

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  • Svenja Hector()

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Abstract

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.

Suggested Citation

  • Svenja Hector(), "undated". "Accounting for Different Uncertainties: Implications for Climate Investments?," Working Papers ETH-RC-13-007, ETH Zurich, Chair of Systems Design.
  • Handle: RePEc:stz:wpaper:eth-rc-13-007
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    References listed on IDEAS

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    Keywords

    discount rate; risk aversion; Kreps-Porteus-Selden; Risk-Sensitive preferences; uncertain preferences; climate change;

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