Uncertainty has an almost negligible impact on project value in the economic standard model. I show that a comprehensive evaluation of uncertainty and uncertainty attitude changes this picture fundamentally. The analysis relies on the discount rate, which is the crucial determinant in balancing...

The paper develops an axiomatic framework for rational decision making. The von Neumann-Morgenstern axioms give rise to a richer risk attitude than that captured in the standard discounted expected utility model. I derive three models that permit a more comprehensive risk evaluation. These...

The prevailing literature discusses intergenerational trade-offs predominantly in infinitely-lived agent models despite the finite lifetime of individuals. We discuss these trade-offs in a continuous time OLG framework and relate the results to the infinitely-lived agent setting. We identify...

The paper analyzes the discount rate under uncertainty. The analysis complements the probabilistic characterization of uncertainty by a measure of confidence. Special cases of the model comprise discounting under smooth ambiguity aversion as well as discounting under a disentanglement of risk...

“Prices versus quantities” (Weitzman 1974), a hugely influential paper, is widely cited (and taught) in current debates about the best policy to reduce greenhouse gas emissions. The paper’s criterion for ranking policies suggests that technological uncertainty favors taxes over cap and...

The paper analyzes optimal climate policy under uncertainty. It endows a recent quantitative analytic integrated assessment model (IAM) with long-run risk, adapting methods from the asset pricing literature to deal with endogenous climate risk. The model solves in closed-form for general degrees...

We model welfare-maximizing policy in an infinite-horizon setting when the probability of a tipping point, the welfare change due to a tipping point, and knowledge about a tipping point's trigger all depend on the policy path. Analytic results demonstrate how optimal policy depends on the...