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Evaluating sustainability actions under uncertainty: the role of improbable extreme scenarios.

Authors :
Gollier, Christian
Source :
Geneva Risk & Insurance Review; Mar2024, Vol. 49 Issue 1, p59-74, 16p
Publication Year :
2024

Abstract

An optimality condition for sustainability actions under discounted expected utility is that, ex post, we should almost surely regret having adjusted them too much for risk. In other words, ex post, one would almost surely feel regret for "excess" precautionary saving, excess insurance and hedging coverage, or for excess risk-bearing. Moreover, for marginal investments whose impacts materialize in t years, t tending to infinity, their state-contingent present value tends to zero almost surely, in spite of the fact that their expected value is one. The value of sustainable actions is thus mostly derived from very improbable extreme scenarios. [ABSTRACT FROM AUTHOR]

Details

Language :
English
ISSN :
1554964X
Volume :
49
Issue :
1
Database :
Complementary Index
Journal :
Geneva Risk & Insurance Review
Publication Type :
Academic Journal
Accession number :
178130410
Full Text :
https://doi.org/10.1057/s10713-023-00095-0