The aim of this research proposal is to provide a unified framework to evaluate and to manage collective long-term risks, with applications to environmental risks (climate change, genetically modified organisms, nuclear wastes, non-renewable resources, biodiversity, &). What should we be willing to give up to reduce these risks? What is the best timing for action? How should the risk evaluation be adapted to the absence of objective probabilities, the conflicts between and biases in individual beliefs, the heterogeneity of individual preferences towards these risks, the ability to predict future impacts, the limited capability to share risk efficiently, or the changing expectations about long-term economic growth and about the scarcity of environmental resources? To examine these questions, we will combine various approaches from modern decision theory, the theory of finance, environmental economics and behavioural economics. This research is also aimed at helping collective decision making by improving the standard tools of benefit-cost analysis for the specificities of long-term risks: discounting of far distant effects, risk premium for fat tails, ambiguity premium, aggregation rules for heterogeneous beliefs and preferences, and option values. We will translate general concepts as sustainable development , corporate social responsibility and precautionary principle into efficient guidelines for collective decision making.
Fields of science
Call for proposal
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Funding SchemeERC-AG - ERC Advanced Grant