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For environmental problems such as global warming future costs must be balanced against present costs. This is traditionally done using an exponential function with a constant discount rate, which reduces the present value of future costs.…
People often face trade-offs between costs and benefits occurring at various points in time. The predominant discounting approach is to use the exponential form. Central to this approach is the discount rate, a unique parameter that…
High future discounting rates favor inaction on present expending while lower rates advise for a more immediate political action. A possible approach to this key issue in global economy is to take historical time series for nominal interest…
The valuation process that economic agents undergo for investments with uncertain payoff typically depends on their statistical views on possible future outcomes, their attitudes toward risk, and, of course, the payoff structure itself.…
Discount is the difference between the face value of a bond and its present value. I propose an arbitrage-free dynamic framework for discount models, which provides an alternative to the Heath--Jarrow--Morton framework for forward rates. I…
We show that different rates should be used for borrowing and discount rates, and that the risk-free rate should be used for discounting when assessing and comparing the cost of energy accross diffferent producers and technologies, on the…
We present a thorough empirical study on real interest rates by also including risk aversion through the introduction of the market price of risk. With the view of complex systems science and its multidisciplinary approach, we use the…
In this paper, we introduce a model that adds a non-linearity to discounting: the discounting factor may depend on the notional (i.e., discounted values are no longer linear in the notional). In the first part of the paper, we provide a…
Climate change is widely expected to increase weather related damage and the insurance claims that result from it. This will increase insurance premiums, in a way that is independent of a customer's contribution to the causes of climate…
In a continuous time stochastic economy, this paper considers the problem of consumption and investment in a financial market in which the representative investor exhibits a change in the discount rate. The investment opportunities are a…
Global warming may induce in Western Europe an increase in storms. Hence the forest managers will have to take into account the risk increase. We study the impact of storm risk at the stand level. From the analytical expressions of the…
We demonstrate a limitation of discounted expected utility, a standard approach for representing the preference to risk when future cost is discounted. Specifically, we provide an example of the preference of a decision maker that appears…
We provide a unifying way to analyze how risk aversion changes bidding in auctions by asking which bids become more attractive as bidders become more risk averse. In first-price auctions, under two payoff conditions--winning is never worse…
Transition risk can be defined as the business-risk related to the enactment of green policies, aimed at driving the society towards a sustainable and low-carbon economy. In particular, the value of certain firms' assets can be lower…
An important question in economics is how people choose between different payments in the future. The classical normative model predicts that a decision maker discounts a later payment relative to an earlier one by an exponential function…
The climate change dispute is about changes over time of environmental characteristics (such as rainfall). Some people say that a possible change is not so much in the mean but rather in the extreme phenomena (that is, the average rainfall…
Natural disasters, such as tornadoes, floods, and wildfire pose risks to life and property, requiring the intervention of insurance corporations. One of the most visible consequences of changing climate is an increase in the intensity and…
This paper considers the problem of consumption and investment in a financial market within a continuous time stochastic economy. The investor exhibits a change in the discount rate. The investment opportunities are a stock and a riskless…
Climate adaptation could yield significant benefits. However, the uncertainty of which future climate scenarios will occur decreases the feasibility of proactively adapting. Climate adaptation projects could be underwritten by benefits paid…
We prove an analogue of Weitzman's (1998) famous result that an exponential discounter who is uncertain of the appropriate exponential discount rate should discount the far-distant future using the lowest (i.e., most patient) of the…