Optimal Decisions on Energy Production with Heterogeneous Risk Perceptions1

In the choice of energy production, a conict appears between rms taking essentially into account the prices of the di!erent energy sources, and consumers sensitive to risks and pollution. In this paper we study this di!erence in objectives, and consequently in decisions, by introducing some heterogeneity in the individuals’ risk perceptions. We assume that uncertainty of the impact of energy use on environment di!ers according to the type of energy (non renewable and renewable). While the optimal strategy of production depends only on market prices and technology, social optimum strongly depends on risk perception. We determine the optimal path for the use of both types of energy and we show that this simultaneous use may be optimal for at most one period of time under our assumptions. We also provide some comparative static results, by considering pessimistic, optimistic and VNM agents.