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In "Bargaining to Lose: The Permeability Approach to Post Transition Resource Extraction" [1] Natasha Chichilnisky-Heal introduces an original and fertile explanation for the resource curse. Her "permeability" approach questions the treatment of the state as a decision maker having the public good as an objective, and replaces it by the results of a bargaining game between the state and International organizations. Her new theory is illustrated with unique hands-on experience in the case of copper and gold mines in Mongolia and Zambia, and focuses on a bargaining game between the state and key financial organizations: the Bretton Woods Institutions (IMF, World Bank) and MNCs. This piece extends and generalizes "Bargaining to lose" providing economic models that validate the original conclusions, and exploring its implications for the global commons: the atmosphere, the oceans and biodiversity. Chichilnisky-Heal’s "permeable state" is a transition to a new globalized society where the sovereign state - a relatively recent creation - is receding giving rise to a new set of global economic agents and institutions that better explain the dynamics of the global commons. We show that the permeable state complements other explanations for the resource curse [2] as a global market failure magnified by globalization and based on the lack of well-defined property rights on natural resources during the pre-industrial period. We generalize Chichilnisky-Heal’s "bargaining to lose" approach to the resource curse and explore its natural implications for the environmental crisis on the global commons. The solutions that Chichilnisky-Heal proposes, e.g. limiting the Bretton Woods’ Institutions’ ‘seat at the negotiation table’ of resource extraction contracts, could help resolve the environmental crisis that is based on over-extraction of global resources.

Differences in property rights create a motive for trade among otherwise identical regions. Two regions with identical technologies, endowments, and preferences will trade if one, the South, has ill-defined property rights on environmental resources. Trade with a region with well-defined property rights transmits and enlarges the problem of the commons: the North overconsumes underpriced resource-intensive products imported form the South. This occurs even though trade equalizes all prices, of goods and factors, worldwide. Taxing the use of resources in the South is unreliable as it can lead to more overextraction. Property-rights policies may be more effective. JEL classifications: (A13, F10, F02, K11, O10, Q20)

We thank Marjorie Sweetko for her thorough re-reading of the English, as well as the program Riskemotion (ANR-08-RISKNAT-007-01) and both the OT-Med Labex and the A*MIDEX project (n° ANR-11-IDEX-0001-02) funded by the «Investissements d’Avenir» French Government program, managed by the French National Research Agency (ANR) for financial support.; International audience; Natural disasters due to climate change (like floods, hurricanes, heat waves or droughts) combine a risk of large losses and a low probability of occurrence, requiring decisions to be made in uncertain universes. However, the inability of standard decision under uncertainty models to provide rankings when some outcomes are catastrophic impedes rational (public) decision-making. This paper examines the role of emotions in individuals’ choices among alternatives involving catastrophic events, either in real life (flooding) or artificial (laboratory experiment) situations. We report a survey on 599 respondents aimed at determining how people exposed to different levels of flood risk form beliefs and make decisions under uncertainty before and after emotion-generating events. Data on their emotions, the emotions they expect to experience, their personality and psychological determinants, their symptoms before and after emotion-generating events are collected and analyzed. In parallel with this survey, experimental protocols replicate the emotional experience of a catastrophe and measure its impact on behavior and formation of beliefs. Emotions are induced by framing effects and measured through a self-declared worry scale. We collect behavioral data (insurance choice, subjective beliefs, performance) and measure how they are affected by the emotions felt during the decision-making. These protocols test some assumptions in the survey using experimental paradigms from psychophysics that allow us to control the sources of uncertainty experienced by the subjects. Results confirm that emotions connected with the nature of the risk can significantly affect desire to reduce it. The survey provides valuable material for comparative analysis, revealing how actual experience of an anticipated event affects decisions. The experiments show that emotions affect the decision-making process and the forming of probabilistic beliefs.

Graciela broached collaboration in terms of social acceptability rather than in terms of naked competition based on division of labor. The social paradigm is more adaptable to the modern information economy where information stored in brain cells is accessible from social interactions. She built on the learning-by-doing model, individually and in collaborative efforts. She enlisted a task-trial model of experimental psychology that shows regime shifting from convex to concave shape as trial increases. An implication of her model is that collaboration is superior to division of labor at higher levels of output.

Pour la premiere fois dans l’histoire, les activites humaines ont des consequences sur la planete qui peuvent mettre en danger ses systemes de base essentiels a la vie. Ces activites transforment rapidement l’atmosphere de la planete, ses etendues d’eau et la variete des especes vivantes. Les emissions de dioxyde de carbone et d’autres gaz a effet de serre causees par les activites anthropiques ont change l’atmosphere de la Terre, entrainant un changement climatique potentiellement catastrophique qui peut menacer la survie de la civilisation humaine. C’est une realite et un phenomene qui se produisent sous nos yeux. Alors que les calottes polaires et le permafrost au Groenland commencent a fondre, le niveau de mer augmente. En Alaska, des villes entieres sont submergees par les eaux. Des especes comme l’ours polaire sont en voie d’extinction. Des Etats insulaires comme les Seychelles et des pays a faible elevation comme le Bangladesh risquent de disparaitre dans l’ocean. Et des centaines de millions de personnes pourraient connaitre le meme sort. On estime qu’il y aura 50 millions de « refugies environnementaux » d’ici a 2010 et plus de 200 millions d’ici a 2050 – soit une personne sur 45.

Modern economic theory came to life in the middle of the twentieth century, providing the intellectual foundations for an unprecedented period of industrial expansion and globalization since World War II. Coupled with population growth, the successful trajectory of industrial society in the twentieth century led to a voracious use of natural resources and global environmental concerns in the twenty-first century. It is uncontested that, for the first time in recorded history, humans dominate the planet. We are changing the planet’s atmosphere, its bodies of water, and the complex web of species that makes life on earth. This radical change in circumstances led to rethinking of the foundations of human organization and, in particular, the industrial economy and the economic theory behind it. The rethinking is underway. Sustainable economics emerged in 1992 at the UN Earth Summit in Rio de Janeiro, anchored in the concept of BasicNeeds that was voted by 150 nations as a cornerstone of efforts to redefine economic development1. The formal theory of sustainable development was introduced in Chichilnisky (1997, 2000). In essence sustainable development seeks to meet the basic needs of the present without depriving the future from meeting its basic needs.

Market objectives can conflict with long-term goals. Behind the conflict is the impatience axiom introduced by T. Koopmans to describe choices over time. The conflict is resolved here by introducing a new concept, sustainable markets. These differ from Arrow-Debreu markets in that traders have sustainable preferences and no bounds on short sales. Sustainable preferences are sensitive to the basic needs of the present without sacrificing the needs of future generations and embody the essence of sustainable development (Chichilnisky 1996a, b). Theorems 1 and 2 show that limited arbitrage is a necessary and sufficient condition describing diversity and ensuring the existence of a sustainable market equilibrium where the invisible hand delivers sustainable as well as efficient solutions (Chichilnisky 1991, 1995; Chichilnisky and Heal 1998). In sustainable markets prices have a new role: they reflect both the value of instantaneous consumption and the value of the long-run future. The latter are suitably ambiguous, they are connected to the independence of the axiom of choice at the foundations of mathematics (Godel 1940).

For many years experimental observations have raised questions about the rationality of economic agents—for example, the Allais Paradox or the Equity Premium Puzzle. The problem is a narrow notion of rationality that disregards fear. This article extends the notion of rationality with new axioms of choice under uncertainty and the decision criteria they imply (Chichilnisky, G., 1996a. An axiomatic approach to sustainable development. Social Choice andWelfare 13, 257–321; Chichilnisky, G., 2000. An axiomatic approach to choice under uncertainty with Catastrophic risks. Resource and Energy Economics; Chichilnisky, G., 2002. Catastrophical Risk. Encyclopedia of Environmetrics, vol. 1. John Wiley & Sons, Ltd., Chicester). In the absence of catastrophes, the old and the new approach coincide, and both lead to standard expected utility. A sharp difference emerges when facing rare events with important consequences, or catastrophes. Theorem 1 establishes that a classic axiom of choice under uncertainty – Arrow’s Monotone Continuity axiom, or its relatives introduced by DeGroot, Villegas, Hernstein and Milnor – postulate rational behavior that is ‘insensitive’ to rare events as defined in (Chichilnisky, G., 1996a. An axiomatic approach to sustainable development. Social Choice andWelfare 13, 257–321; Chichilnisky, G., 2000. An axiomatic approach to choice under uncertainty with Catastrophic risks. Resource and Energy Economics; Chichilnisky, G., 2002. Catastrophical Risk. Encyclopedia of Environmetrics, vol. 1. John Wiley & Sons, Ltd., Chicester). Theorem 2 replaces this axiom with another that allows extreme responses to extreme events, and characterizes the implied decision criteria as a combination of expected utility with extremal responses. Theorems 1 and 2 offer a new understanding of rationality consistent with previously unexplained observations about decisions involving rare and catastrophic events, decisions involving fear, the Equity Premium Puzzle, ‘jump diffusion’ processes and ‘heavy tails’, and it agrees with (Debreu, G., 1953. Valuation equilibrium and Pareto optimum. Proceedings of the National Academy of Sciences, 40, 588–592) formulation of market behavior and his proof of Adam Smith’s Invisible Hand theorem.

Aggressive efficiency improvements and a shift away from fossil fuels cannot offset climate change threats. This realization creates an imperative for ‘carbon-negative’ mitigation measures; that is, measures that can reduce atmospheric carbon faster than emissions will load the atmosphere. Among such measures, air extraction technology, coupled with secure sequestration, offers advantages of centralization and control without direct intervention in the biosphere or major collateral environmental impact. Significant new scientific developments in air extraction show promise of greatly reduced costs, such that decreasing the concentration of carbon in the atmosphere to substantially lower risk levels may be economically practicable. These developments create a strong case for expanded R&D efforts aimed at advancing air extraction technology.

Resumen. Segun un modelo de equilibrio generalde dos esferas (hogary mercado), la productividad de la mujer en el trabajo remunerado disminuye cuantas mas tareas desempena en el hogar. Partiendo del supuesto de que las aportaciones de hombres y mujeres a las labores domesticas son complementarias, las autoras comprueban que hay multiples equilibrios posibles. En algunos, ellosy ellas asumen estas tareas por igualy ganan salarios iguales; en otros, se las reparten de manera dispar y ganan salarios diferentes. Por otraparte, los estereotipos acerca de la productividad de las mujeres perpetuan la desigualdad. Las autoras, valiendose de ejemplos numericos, demuestran que hay mayor bienestar cuando los conyuges se reparten el trabajo a partes iguales. Para terminar, exponen algunas conclusiones.

Resume. Partant de l'hypothese selon laquelle les apports en travail domestique des hommes et des femmes sont complementaires, les auteures verifient l'existence d'equilibres multiples. Dans certains cas, le travail est reparti aegalite et les salaires sont identiques. Dans d'autres, la repartition est differente, de meme que les salaires. Dans ce contexte, les stereotypes relatifs a l'inferiorite de la productivite des femmes se revelent autorealisateurs. Partant d'exemples numeriques, les auteures montrent que le bien-etre est superieur lorsque le couple repartit le travail a part egale, puis elles enoncent des recommandations politiques.

We extend the foundation of subjective probability to integrate rare events that are potentially catastrophic, called black swans, such as natural hazards, market crashes, catastrophic climate change and major episodes of species extinction. Such events are generally treated as ‘outliers’ and often disregarded. We propose a new axiomatization of subjective probability requiring equal treatment for rare and frequent events—the Swan Axiom—and characterize the subjective probabilities that the axioms imply: these are neither finitely additive nor countably additive but a combination of both. They exclude countably additive probabilities as in De Groot (1970) and Arrow (1971), and are a strict subset of Savage (1972) probabilities that are finitely additive measures. Our subjective probabilities are standard distributions when the sample has no black swans. The finitely additive part assigns however more weight to rare events than do standard distributions and in that sense explains the persistent observation of ‘power laws’ and ‘heavy tails’ that eludes classic theory. The axioms extend earlier work in Chichilnisky (2000; 2002) to encompass the foundation of subjective probability, and axiomatic treatments of subjective probability by Savage (1972), Villegas (1964) and the foundations of choice under uncertainty in Arrow (1971).

Classic probability theory treats rare events as ‘outliers’ that are often disregarded and underestimated. Yet in a moment of change rare events can become frequent and frequent events rare. We therefore postulate new axioms for probability theory that require a balanced treatment for rare and frequent events, based on what we call “the topology of change”. The axioms extend the foundation of probability to integrate rare but potentially catastrophic events or black swans: natural hazards, market crashes, catastrophic climate change and major episodes of species extinction. The new results presented in this article include a characterization of a family of purely finitely additive measures that are—somewhat surprisingly—absolutely continuous with respect to the Lebesgue measure. This is a new development from an earlier characterization of all the probabilities measures implied by the new axioms as a combination of purely finitely additive and countably additive measures that was first established in Chichilnisky (2000, 2002, 2009b) and the results are contrasted here to the work of Kolmogorov (1950), De Groot (1970), Arrow (1971), Dubins and Savage (1965), Savage (1972), Von Neumann and Morgernstern (1944), and Herstein and Milnor (1953).

We study the introduction of new assets that are defined in expected values rather than state by state. Individual default emerges naturally in an economy where such assets are introduced without completing all contingency markets. We further provide conditions under which individual default is propagated endogenously into a collective risk of widespread default in general equilibrium. We prove existence of a general equilibrium with endogenous uncertainty. © 2006 Elsevier B.V. All rights reserved.

The article covers new theories in economics in the twentyfirst century, including sustainable development, North-South trade, the global environment, and decisions with catastrophic risks. Keywords: economic theory; catastrophic risks; North South trade; sustainable development; basic needs

Classic probability theory treats rare events as ‘outliers’ that are disregarded and underestimated. In a moment of change however rare events can become frequent, and frequent events rare. We postulate new axioms for probability theory that require a balanced treatment of rare and frequent events, based on what we call “the topology of change”. The axioms extend the foundation of probability to integrate rare but potentially catastrophic events or black swans: natural hazards, market crashes, catastrophic climate change and episodes of species extinction. The new results include a characterization of a family of purely finitely additive measures that are—somewhat surprisingly—absolutely continuous with respect to the Lebesgue measure. This is a new development from an earlier characterization of probability measures implied by the new axioms, which where countably additive measures created in Chichilnisky (2000), Wiley, Chichester (2002), Chichilnisky (2009, 2009a). The results are contrasted to the axioms of Kolmogorov (1933/1950), De Groot (1970/2004), Arrow (1971), Dubins and Savage (1965), Savage (1972), Von Neumann and Morgernstern (1944), and Hernstein and Milnor.

This paper analyses decision under uncertainty with catastrophic risks, and is motivated by problems emerging from global environmental risks. These are typically low-probability events with major irreversible consequences. For such risks, the Von Neumann–Morgenstern (NM) axioms for decision making under uncertainty are not appropriate, since they are shown here to be insensitive to low-probability events. The paper introduces an alternative set of axioms requiring sensitivity to both low- and large-probability events. Through a new representation theorem in functional analysis, the results characterize all the operators whose maximization leads to the fulfillment of these axioms. They involve a convex combination of expected utility and a criterion based on the desire to avoid low probability and potentially catastrophic events. It is shown that the new axioms help resolve the Allais paradox. Open questions about risk aversion, games under uncertainty and calculus of variations are discussed.

In the quest for balanced criterion for the problem of intergenerational choice we explore the role played by different groups of generations, which are represented by the Cech-Stone compactification of the naturals.

(10027). t has been said that insurance is the last of the financial services to accept radical change (Denney [1995-19961). Yet there has been a fundamental s h f t in the geographic location and in the organization of the reinsurance industry in the last s i x years (Chichilnisky [1996b]). Global environmental risks are partly responsible for this change; increased weather volatility and catastrophic risks are difficult to diversifj using traditional insurance practices. To provide a map to the future, we need a realistic appraisal of how we got where we are. This is the story of how humans have hedged risks. There are two basic and hstinct approaches: statistical and economic. The former is typical of the insurance industry; the latter typifies the securities industry. Both are needed to manage today’s catastrophc risks. Neither alone w d do. We show how a combination of both leads to effitcomes, and is the way to the future cient (Chichi Q ‘Yky [1996a, 1996b, 1996d1). The volatility of weather, taken together with population movement to warm coastal areas and changing property prices, has made catastrophic risks highly unpredictable. Many scientists believe that climate change could be the source. A recent report by the Intergovernmental Panel on Climate Change (IPCC), charged by governments with investigating global warming, says that humans have a “discernible” influence on global climate. In May 1996, insurance executives confronted the energy industry over global warming, and took their

A single condition, limited arbitrage, is shown to be necessary and sufficient for the existence of a competitive equilibrium and the core in economies with any number of markets, finite or infinite, with or without short sales. This extends earlier results of Chichilnisky [8] for finite economies. This unification of finite and infinite economies is achieved by proving that in Hilbert spaces limited arbitrage is necessary and sufficient for the compactness of the Pareto frontier. Limited arbitrage has also been shown to be necessary and sufficient for a resolution of the social choice paradox [9], [10], [12], [13], [14].

We are on the threshold of a truly revolutionary era of discovery - ranging from the origins of the universe to new states of matter and microscopic machines, from a new understanding of the oceans and of the biological connections across the Earth's species to the functioning of the human brain and the origins of consciousness. This `golden age' of discovery, with frequent breakthroughs occurring virtually in every field, is inducing far-reaching social changes. We are undergoing a social and economic revolution which matches the impact of the agricultural and industrial revolutions. This is a `knowledge revolution' driven by knowledge and by the technologies for processing and communicating it. Knowledge is an intangible public good. It is privately produced, and it is replacing land and machines as the primary factor of production prevailing in the agricultural and industrial revolutions. This alters the terms of the debate between capitalism and socialism, and leads to a human-centred society with different types of markets, corporate structure and financial structures. Property rights on knowledge are key. Human capital is the engine of development. Markets require more egalitarian distribution of wealth for efficient functioning. The golden age of industrial society, with its voracious and unequal use of the Earth's resources, is reaching its logical limits. A new pattern of economic growth, knowledge-intensive growth, replaces the resource-intensive patterns that prevailed since World War II. This leads to a vision of society that is very innovative in the use of knowledge and very conservative in the use of the earth's resources, a new society centred on diversity and human capital and offering the prospect of substantial economic progress without damaging the ecosystems that support life on earth.

Among the tools of the economic trade, cost-benefit analysis is the most widely used in policy circles. Asking whether there is a role for cost-benefit analysis is like asking whether there is a role for the weatherman. Of course there is. The analogy is not idle. We need to know the weather, for it causes some of the worst uncertainties known to humans. But it is at least as important to know that the weather service makes errors. We need to know its limitations to take precautions. Errors can be costly. Think of cyclones, droughts and floods. Few of us would fly an airplane in possibly dangerous weather conditions if we did not know the margin of error. Like weather prediction, cost-benefit analysis can be useful but it can also go wrong. Erroneous cost-benefit analysis can be as damaging as erroneous weather prediction. Both fail when concerned with larger issues. Weather predictions for large areas and for large timescales are unreliable and could be dangerous if taken too seriously. The same holds true with cost-benefit analysis. Climate change is a global version of this problem, and illustrates it well.

Classic formulations of markets regard uncertainty as originating from acts of nature. l extend this to a formulation of markets which face risks induced by the economy itself, such as the environmental risks of atmospheric and climate change induced by CFC and CO; emissions. l formulate and prove the existence of a general competitive equilibrium where the state space and the probabilities of events are endogenously determined as part of the equilibrium. Traders take optimal positions with respect to the uncertainty which their own actions induce. The equilibrium allocations are efficient in a restricted sense. l show that scientific uncertainty can be fully hedged. However uncertainty induced by the unknown level of output at an equilibrium cannot be hedged fully. l discuss applications for CAT Futures. recently introduced on the Chicago Board of Trade, and to international environmental strategies.

A close connection is drawn between the non-emptiness of the core and limited arbitrage, a condition originally defined on the preferences and endowments of the traders of an Arrow-Debreu economy in Chichilnisky (1992, 1993b, 1994, 1995a,b). This condition limits the traders' diversity, and bounds their mutually beneficial gains from trade.

This paper studies maps which are invariant under the action of the symmetry group S k . The problem originates in social choice theory: there are k individuals each with a space of preferences X, and a social choice map ϕ:X k → X which is anonymous i.e. invariant under the action of a group of symmetries. Theorem 1 proves that a full range map ψ:X k → X exists which is invariant under the action of S k only if, for all i≥1, the elements of the homotopy group Π i (X) have orders relatively prime with k. Theorem 2 derives a similar results for actions of subgroups of the group S k . Theorem 3 proves necessary and sufficient condition for a parafinite CW complex X to admit full range invariant maps for any prime number k:X must be contractible.

The theory of social choice introduced in [5,6] is robust; it is completely independent of the choice of topology on spaces of preference. This theory has been fruitful in linking diverse forms of resource allocation; it has been shown [17] that contractibility is necessary and sufficient for solving the social choice paradox; this condition is equivalent [11] to another- limited arbitrage- which is necessary and sufficient for the existence of a competitive equilibrium and the core of an economy [13, 14, 15, 16, 17]. The space of monotone preferences is contractible; as shown already in [6, 17] such that spaces admit social choice rules. However, monotone preferences are of little interest in social choice theory becasue the essence of the social choice problem, such as Condorcet triples, rules out monotonicity.