future orientation promotes climate concern and mitigation abstract climate change entails uncertainties in the timing and scale of future impacts imposing challenges to decision making with intertemporal trade offs when making intertemporal trade offs future impacts are often considered distant and discounted in present decision making and policy design the future however is not only temporally distant but also perceived in culturally and psychologically different ways based on national statistics and individual level survey data statistical analyses show that both national and individual differences in future orientation affect climate perception and mitigation at the national level countries with languages that grammatically highlight the future are associated with higher climate concern lower carbon emissions and energy use and more progress in climate mitigation individual level evidence suggests that future orientation helps the public understand complicated climate issues make more personal mitigation but not necessarily collective action or policy support the findings indicate the important role that subjective future orientation plays in climate perception and decision making both behavioral intervention and climate communication can be designed based on future orientation to better address climate change

energy conservation investment do consumers discount the future correctly we argue that the apparently high discount rates attributed to investors making energy conservation investments are not irrational or the result of some market failure rather they may result from an investor recognizing that many conservation investments entail substantial sunk costs in the presence of these costs and uncertainty over future conservation savings consumers should use a higher hurdle rate for investment than if there were no uncertainty simulations suggest that the hurdle rate should be about four times greater than the standard rate an implication of our model is that tax subsidies for the purchase of conservation capital are likely to be ineffective we discuss alternative policy approaches which are more likely to increase energy efficient investment namely mandatory efficiency standards and energy taxes

a potential disintegration of the west antarctic ice sheet implications for economic analyses of climate policy the earth system may react in a nonlinear threshold response to climate forcings incorporating threshold responses into integrated assessment models iams used for climate policy analysis poses nontrivial challenges for example due to methodological limitations and pervasive deep uncertainties here we explore a specific threshold response a potential disintegration of the west antarctic ice sheet wais we review the current scientific understanding of wais identify methodological and conceptual issues and demonstrate avenues to address some of them through a stochastic hazard iam framework combining emulation expert knowledge and learning we conclude with a discussion of challenges and research needs

making the implicit explicit a look inside the implicit discount rate implicit discount rates idrs are employed in energy models to capture household investment decisions yet the factors behind the idr and their respective implications for policy making usually remain blurred and fractional the proposed comprehensive framework distinguishes three broad categories of factors underlying the idr for household adoption of energy efficient technologies eets preferences notably over time risk loss debt and the environment predictable ir rational behavior bounded rationality rational inattention behavioral biases and external barriers to energy efficiency existing empirical findings suggest that the factors underlying the idrs that differ across household characteristics and technologies should be accounted for in energy models furthermore the framework allows for a fresh look at the interplay of idrs and policies we argue that a simple observation of high idrs or observing correlations between idrs and socio economic characteristics does not provide guidance for policy making since the underlying sources cannot be identified instead we propose that some of the factors underlying the idr notably external barriers can be changed through directed policy interventions whereas other factors notably preferences and predictable ir rational behavior are innate and can only be taken into account through reactive policy interventions

exploring the diffusion of low energy houses an empirical study in the european union abstract diffusion of low energy houses is an important part of energy and climate policy in the european union eu and in individual eu countries key barriers to the adoption of low energy houses include additional construction costs and uncertainty surrounding actual energy and cost savings in this paper we econometrically analyze determinants of low energy house adoption including time and risk preferences we rely on original data from a large survey conducted among households in eight eu countries to our knowledge this is the first empirical study of low energy building adoption to rely on a demographically representative sample our set of covariates includes parameters of time and risk preferences that were elicited via state of the art incentivized multiple price list experiments and via self assessment scales we find mixed results for the effects of time discounting on low energy house adoption risk preferences do appear to matter as risk proneness increases so does the adoption of zero net or energy plus building but not passive houses consistent with the low cost hypothesis about environmental attitude and action we find no results for environmental attitudes and social norms

a large scale test of the effects of time discounting risk aversion loss aversion and present bias on household adoption of energy efficient technologies abstract this paper empirically and jointly analyses the relations between standard time discounting risk aversion loss aversion and present bias and household stated adoption of low to high stake energy efficiency technologies eets light emitting diodes leds energy efficient appliances and retrofit measures the analysis relies on a large representative sample drawn from eight european union countries preferences over time risk and losses were elicited and jointly estimated from participant choices in incentivized context free multiple price list experiments the findings from econometrically estimating eet adoption equations provide some support for the hypothesis that individuals who are more loss averse or more risk averse or who exhibit a lower time discount factor are less likely to have adopted eets yet some of the results significance levels and effect sizes appeared sensitive to the addition of covariates which may be an indication of bad controls finally omitting one or several of the parameters capturing preferences over time risk and losses when estimating the eet adoption equations did not appear to cause omitted variable bias

decision making over time and under uncertainty a common approach this paper considers a number of parallels between risky and intertemporal choice we begin by demonstrating a one to one correspondence between the behavioral violations of the respective normative theories for the two domains i e expected utility and discounted utility models we argue that such violations or preference reversals are broadly consistent with three propositions about the weight that an attribute receives in both types of multiattribute choice specifically it appears that 1 if we add a constant to all values of an attribute then that attribute becomes less important 2 if we proportionately increase all values of an attribute or if we change the sign of an attribute from positive to negative then that attribute becomes more important the generality of these propositions as well as the constraints they would impose on separable representations of multiattribute preferences is discussed

the structure of economic modeling of the potential impacts of climate change grafting gross underestimation of risk onto already narrow science models scientists describe the scale of the risks from unmanaged climate change as potentially immense however the scientific models because they omit key factors that are hard to capture precisely appear to substantially underestimate these risks many economic models add further gross underassessment of risk because the assumptions built into the economic modeling on growth damages and risks come close to assuming directly that the impacts and costs will be modest and close to excluding the possibility of catastrophic outcomes a new generation of models is needed in all three of climate science impact and economics with a still stronger focus on lives and livelihoods including the risks of large scale migration and conflicts

the statistics of sharpe ratios the building blocks of the sharpe ratio expected returns and volatilities are unknown quantities that must be estimated statistically and are therefore subject to estimation error this raises the natural question how accurately are sharpe ratios measured to address this question i derive explicit expressions for the statistical distribution of the sharpe ratio using standard asymptotic theory under several sets of assumptions for the return generating process independently and identically distributed returns stationary returns and with time aggregation i show that monthly sharpe ratios cannot be annualized by multiplying by 12 except under very special circumstances and i derive the correct method of conversion in the general case of stationary returns in an illustrative empirical example of mutual funds and hedge funds i find that the annual sharpe ratio for a hedge fund can be overstated by as much as 65 percent because of the presence of serial correlation in monthly returns and once this

marginal costs and co benefits of energy efficiency investments the case of the swiss residential sector abstract key elements of present investment decision making regarding energy efficiency of new buildings and the refurbishment of existing buildings are the marginal costs of energy efficiency measures and incomplete knowledge of investors and architects about pricing co benefits and new technologies this paper reports on a recently completed empirical study for the swiss residential sector it empirically quantifies the marginal costs of energy efficiency investments i e additional insulation improved window systems ventilation and heating systems and architectural concepts for the private sector first results on the economic valuation of co benefits such as improved comfort of living improved indoor air quality better protection against external noise etc may amount to the same order of magnitude as the energy related benefits are given the cost benefit analysis includes newly developed technologies that show large variations in prices due to pioneer market pricing add on of learning costs and risk components of the installers based on new empirical data on the present cost situation and past techno economic progress the potential of future cost reduction was estimated applying the experience curve concept the paper shows for the first time co benefits and cost dynamics of energy efficiency investments of which decision makers in the real estate sector politics and administrations are scarcely aware

the next generation of urban maccs reassessing the cost effectiveness of urban mitigation options by integrating a systemic approach and social costs abstract many cities are implementing policies and climate action plans yet local climate policies suffer from a lack of scientific understanding and evaluation methods able to support the definition of efficient mitigation strategies the purpose of this paper is to build on classical approaches in the energy policy field that exist at the national and international level to propose an urban maccs methodology able to fulfill this lack and inform local debates the methodology is an extension of static expert based maccs it combines a land use transport integrated model and an abatement cost methodology that integrates co benefits and takes into account the spatial and systemic dimensions of cities the methodology is implemented for the transportation sector of a mid sized european city grenoble france our results present the cost effectiveness and political feasibility of several proposed measures we find that the inclusion of co benefits can profoundly change the cost benefit assessment of transport mitigation options moreover we underline the key parameters determining the cost effectiveness ranking of mitigation options these urban maccs aim to serve as a bridge between urban planning and mitigation policies and can thus contribute to strengthen and align sustainable and climate change agendas at the local level

evolution of time preference by natural selection this paper entertains the hypothesis that human time preferences are in evolutionary equilibrium i e that no mutation changing time preferences could be favored by natural selection this hypothesis implies that the marginal rate of substitution mrs holding darwinian fitness constant must equal the mrs holding utility constant furthermore in a market economy the latter must equal the mrs in exchange exploiting these principles the author finds that the long term real interest rate should equal ln 2 per generation about 2 percent per year and that young adults should discount the future more rapidly than their elders copyright 1994 by american economic association

is mean variance analysis applicable to hedge funds abstract this paper shows that the mean variance analysis of hedge funds approximately preserves the ranking of preferences in standard utility functions this extends the results of levy and markowitz 1979 levy h markowitz h m 1979 approximating expected utility by a function of mean and variance american economic review 69 308 317 and hlawitschka 1994 hlawitschka w 1994 the empirical nature of taylor series approximations to expected utility american economic review 84 713 719 for individual stocks and portfolios of stocks

a theory of time preference grant a taylor this article proposes that people generally prefer present consumption to future consumption because their expected utility from consumption eventually falls as their mental and physical abilities eventually decline with age moreover contrary to the ubiquitous intertemporal formulation with a constant rate of time preference and contrary to three recent theories of time preference that predict decreasing discounting as people age this article asserts that discounting increases over the life cycle this hypothesis is supported by data from the panel study of income dynamics as well as evidence from numerous previous studies jel d91 1 introduction despite the almost universal assumption of time preference in models of intertemporal choice an adequate explanation of why people discount the future has not been provided 1 olsen and bailey 1981 make a convincing case for positive time preference by contradiction i e without time preference models of intertemporal choice do not yield predictions consistent with observed behavior but they do not explain why individuals would rationally discount the future 2 three recent studies have attempted to provide the explanation rogers 1994 argues that societies that discount the future at a rate of about 2 will be the long run survivors in an evolutionary fitness situation 3 posner 1995 argues that discounting occurs because individuals have multiple selves that is people are weighting their present consumption far more heavily than their future consumption because the present self and the future self are in some meaningful sense separate persons 92 becker and mulligan 1997 argue that discounting occurs because of a rational defective recognition of future utilities 730 but as will be shown these three theories are inconsistent with empirical evidence on consumption over the life cycle in at least one important aspect this article constructs and empirically supports a new theory of time preference the hypothesis is that people do not have an intrinsic preference for present consumption relative to future consumption instead the instantaneous utility function also known as the felicity function is expected to vary with age just as people s physical and mental abilities vary with age in other words the ability to enjoy consumption eventually deteriorates over the life cycle along with other abilities this life cycle view of the expected utility function causes people to rationally devalue consumption in periods of low expected felicity that is discount future consumption perhaps this is what is meant by the cliche don t wait until you are too old to enjoy it moreover this causes individuals implicit discount rates to vary systematically with age 4 in fact this provides the testable implication of the theory the standard specification of intertemporal preferences holds the discount rate constant over th e life cycle 5 to be more precise in the early stage of the life cycle the capacity to enjoy consumption may be expected to rise hence a young individual s discount rate may be negative figure 1 illustrates this possibility with a hypothetical adult life cycle marginal felicity function for a given level of consumption u sub c c a c denotes consumption and a denotes age and its corresponding discount rate function rho a the vast majority of wealth is held by older people that is those in the declining stage of their abilities thus the preference for present consumption over future consumption appears to hold in the aggregate this view of intertemporal preferences may at first seem inconsistent with practically all dynamic analyses which are based on the notion of stationary utility on further consideration however the hypothesis is quite consistent with modern consumer theory since becker 1965 it has been widely accepted that households derive utility from commodities that are produced with market goods combined with household time and skills i

prioritarianism and climate change prioritarianism is the ethical view that gives greater weight to well being changes affecting individuals at lower well being levels this view is influential both in moral philosophy and in theoretical work on social choice where it is captured by a social welfare function swf summing a concave transformation of individual well being numbers however prioritarianism has largely been ignored by scholarship on climate change this article compares utilitarianism and prioritarianism as frameworks for evaluating climate policy it reviews the distinctive normative choices that are required for the prioritarian approach specifying a ratio scale for well being if the prioritarian swf takes the standard atkinson form determining the degree of concavity of the transformation function i e the degree of social inequality aversion and choosing between ex ante and ex post prioritarianism under conditions of risk the article also sketches some of salient implications of a prioritarian swf for climate policy with respect to the social cost of carbon the social discount rate optimal mitigation and the dismal theorem finally it discusses the issue of variable population

revisiting the techno economic analysis process for building mounted grid connected solar photovoltaic systems part two application part one in this two part paper identified monte carlo analysis as an improved approach over traditional deterministic techno economic methods for solar pv prosumers in deregulated markets in this

cost effective subsidy incentives for room air conditioners in china an analysis based on a mcfadden type discrete choice model abstract based on a mcfadden type conditional logit cl discrete choice model this paper estimates the most economic subsidy level mesl for room air conditioners racs in china that minimizes the net cost of subsidy per unit of electricity saved the analysis reveals that given the current price and efficiency spectrum of racs in the chinese market as well as the electricity price and cooling demand of chinese households the mesl for racs in china should be around 60 which is much higher than the current subsidy level of 5 15 a sensitivity analysis suggests that the high mesl 60 is mainly a consequence of relatively low electricity price and household cooling demand in the country if china s household cooling demand increases further and its electricity price were to rise to a higher level the mesl for racs could possibly drop to about 5 15 as household cooling demand varies among chinese cities in different climatic zones and at different levels of economic development the rac subsidy incentives should be region specific with necessary modifications the method for analysis proposed in this paper can also be applied to other household appliances to prioritize the types of appliances requiring subsidies

discount rates inferred from decisions an experimental study two hundred and four students of economics and finance participated in an intertemporal choice experiment which manipulated three dimensions in a 4 4 4 factorial design scenario postponing a receipt postponing a payment expediting a receipt expediting a payment time delay 0 5 1 2 and 4 years and size of cashflow 40 200 1000 and 5000 individual discount rates were inferred from the responses and then used to test competitively four hypotheses regarding the behavior of discount rates the classical hypothesis asserting that the discount rate is uniform across scenarios time delays and sums of cashflow was flatly rejected a market segmentation approach was found lacking the results support an implicit risk hypothesis according to which delayed consequences are associated with an implicit risk value and an added compensation hypothesis which asserts that individuals require compensation for a change in their financial position

hedge fund performance 1990 2000 do the money machines really add value we investigate the claim that hedge funds offer investors a superior risk return tradeoff we do so using a continuous time version of dybvig s 1988a 1988b payoff distribution pricing model the evaluation model which does not require any assumptions with regard to the return distribution of the funds to be evaluated is applied to the monthly returns of 77 hedge funds and 13 hedge fund indices from may 1990 april 2000 the results show that as a stand alone investment hedge funds do not offer a superior risk return profile we find 12 indices and 72 individual funds to be inefficient with the average efficiency loss amounting to 2 76 per annum for indices and 6 42 for individual funds part of the inefficiency cost of individual funds can be diversified away funds of funds however are not the preferred vehicle for this as their performance appears to suffer badly from their double fee structure looking at hedge funds in a portfolio context results in a marked improvement in the evaluation outcomes seven of the 12 hedge fund indices and 58 of the 72 individual funds classified as inefficient on a stand alone basis are capable of producing an efficient payoff profile when mixed with the s p 500 the best results are obtained when 10 20 of the portfolio value is invested in hedge funds

does the choice of performance measure influence the evaluation of hedge funds abstract the sharpe ratio is adequate for evaluating investment funds when the returns of those funds are normally distributed and the investor intends to place all his risky assets into just one investment fund hedge fund returns differ significantly from a normal distribution for this reason other performance measures for hedge fund returns have been proposed in both the academic and practice oriented literature in conducting an empirical study based on return data of 2763 hedge funds we compare the sharpe ratio with 12 other performance measures despite significant deviations of hedge fund returns from a normal distribution our comparison of the sharpe ratio to the other performance measures results in virtually identical rank ordering across hedge funds

estimating individual discount rates in denmark a field experiment we estimate individual discount rates with respect to time streams of money using controlled laboratory experiments these discount rates are elicited by means of field experiments involving real monetary rewards the experiments were carried out across denmark using a representative sample of 268 people between 19 and 75 years of age individual discount rates are estimated for various households differentiated by socio demographic characteristics such as income and age our conclusions are that discount rates are constant over the 12 month to 3 year horizons used in these experiments and that discount rates vary substantially with respect to several socio demographic variables hence we conclude that it would be reasonable to assume constant discount rates for specific household types but not the same rates across all households

subjective discount rates in the general population and their predictive power for energy saving behavior why do people sometimes refrain from saving energy even if it would pay off in monetary terms subjective discount rates present one possible explanation for this lack of foresight but little is known about their level and reliability in the general population with regard to behavior persons with lower discount rates are expected to accept additional costs upfront more readily than those with higher discount rates based on a representative nation wide study the swiss environmental survey 2007 and a follow up survey our analyses reveal that on average subjective discount rates are well above market interest rates and moderately stable over a time interval of four years income and education are negatively correlated with discount rates contrary to expectations we did not find convincing support for an impact of discount rates on energy saving behavior