Accounting for Different Uncertainties: Implications for Climate Investments?

ETH Risk Center – Working Paper Series ETH-RC-13-007

23 Pages Posted: 10 Jan 2014

See all articles by Svenja Hector

Svenja Hector

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich

Multiple version iconThere are 3 versions of this paper

Date Written: November 2013

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.

Keywords: discount rate, risk aversion, Kreps-Porteus-Selden, Risk-Sensitive preferences, uncertain preferences, climate change

JEL Classification: H43, D81, Q54

Suggested Citation

Hector, Svenja, Accounting for Different Uncertainties: Implications for Climate Investments? (November 2013). ETH Risk Center – Working Paper Series ETH-RC-13-007, Available at SSRN: https://ssrn.com/abstract=2376376 or http://dx.doi.org/10.2139/ssrn.2376376

Svenja Hector (Contact Author)

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland

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