FEEM working papers "Note di lavoro" series
2013 .107

Accounting for Different Uncertainties: Implications for Climate Investments?


Authors: Svenja Hector
Series: Climate Change and Sustainable Development
Editor: Carlo Carraro
Keywords: Discount Rate, Risk Aversion, Kreps-Porteus-Selden, Risk-Sensitive Preferences, Uncertain Preferences, Climate Change
JEL n.: H43, D81, Q54

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.

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Suggested citation: Hector, S., (2013), 'Accounting for Different Uncertainties: Implications for Climate Investments?' Nota di Lavoro 107.2013, Milan, Italy: Fondazione Eni Enrico Mattei.

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