Both climate change and technical change are uncertain. In this paper we show the importance of including both uncertainties when modeling for policy analysis. We then develop an approach for incorporating uncertainty of technical change into climate change policy analysis. We define and demonstrate a protocol for bottom-up expert assessments about prospects for technologies. We then describe a...

In this paper the Esscher premium calculation principle is applied to the non-compound collective model in a robust Bayesian context. We consider that uncertainty with regard to the prior distribution can be represented by the assumption that the unknown prior distribution belongs to a class of distributions 0 and examine the ranges of the Bayesian premium when the priors belong to such a class...

Blackwell (1951, 1953) proposes an informativeness ranking of experiments: Experiment I is more Blackwell-informative than Experiment II if and only if the value of experiment I is higher than that of experiment II for all expected-utility maximizers. Under commitment and reduction, our main theorem shows that Blackwell equivalence holds for all convex and strongly monotone preferences, i.e., t...

We show that if policymakers compute the optimal unconstrained interest-rate rule within a Taylor-type class, they may be led to rules that generate indeterminacy and/or instability under learning. This problem is compounded by uncertainty about structural parameters since an optimal rule that is determinate and stable under learning for one calibration may be indeterminate or unstable under le...

This paper studies a complete-market version of the neoclassical growth model, where agents face idiosyncratic shocks to earnings. We show that if agents possess identical preferences of either the CRRA or the addilog type, then the heterogeneous-agent economy behaves as if there was a representative consumer who faces three kinds of shocks, to preferences, to technology and to labor. We calibr...

Recent work in the real options approach to investment has argued that firms face significant opportunity costs when entry costs are largely irreversible, and these costs equal the value of an option to defer investment. This study seeks to examine empirically these claims by investigating the interactive effects of uncertainty and irreversibility on the likelihood of entry into new business by...

Affective decision-making is a strategic model of choice under risk and uncertainty where we posit two cognitive processes — the "rational" and the "emotional" process. Observed choice is the result of equilibirum in this intrapersonal game. As an example, we present applications of affective decision-making in insurance markets, where the risk perceptions of consumers are endogenous. We then d...

The purpose of this paper is to investigate the role of exchange rate uncertainty in determining foreign direct R&D investment into the UK. We estimate an econometric model of FDI in R&D, using a panel of manufacturing industries. Our results suggest that an increase in the volatility of the euro-dollar exchange rate tends to relocate R&D investment from the Euro Area into the UK. A rise in the...

An important element of the cost of distance is time taken in delivering final and intermediate goods. We argue that time costs are qualitatively different from direct monetary costs such as freight charges. The difference arises because of uncertainty. Unsynchronised deliveries can disrupt production, and delivery time can force producers to order components before demand and cost uncertaintie...

Austen-Smith and Banks (1996) showed that sincere voting is not typically an equilibrium of the Condorcet voting model when the electorate is large. Here, we reverse their finding by adding to the Condorcet model a third type of voter—one that receives no information in favor of either of the alternatives—as well as global uncertainty about the probability that each voter is such a “no evidence...