By Christoph Heinzel
This learn contributes to the industrial discounting debate via reading the welfare and coverage implications of distorted time personal tastes for personal investments. The research is utilized to the strength undefined, the place it's of specific significance. within the transition to low-carbon power new release, distorted time personal tastes are proven to urge another distortion, as well as that from the emission externality. Its quantity varies at once with the time lag in capital accumulation. in an effort to enforce the socially optimum course, environmental coverage should be complemented via expertise coverage. The theoretical findings are utilized to the approaching structural swap within the German electrical energy within the 2010s.
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Extra resources for Distorted Time Preferences and Structural Change in the Energy Industry: A Theoretical and Applied Environmental-Economic Analysis
2, however, three reasons were introduced, which are clearly relevant for investments in the energy sector but also clearly go beyond the four standard cases. As put forward by Weitzman (1994), Grant and Quiggin (2003) and Gollier (2002a), they relate, respectively, to increasing environmental externalities over time as well as adverse-selection problems or uninsurable long-run risks as inducing financial-market distortions. The arguments were set out in detail in order, first, to illustrate the current heterogeneity of approaches to state causes for the split discount rates, and, second, to further detail to some extent the complexity of the aspects that matter.
Each individual is supposed to be endowed with i units of equity and zero units of bonds. Moreover, the authors assume that trade in securities takes place before individuals have information about the index of the firm that employs them. No trade is possible after this information has become known. For their analysis, Grant and Quiggin then consider two kinds of personal insurance contracts, with a positive payout in state Ri1 and a negative payout in the other two states. In both cases, the insurance contracts must be entered into before individuals have information about the index of the firm which employs them.
In the model three states of the world arise. To the two global states, ‘boom’ (B) and ‘recession’ (R), add, for the case of recession, the two individual states of ‘job’ ( j) and ‘job loss’ (n j): (Bi) boom, occurring with probability 1 − π , (Ri j ) recession without job loss, occurring with probability π (1 − ι ), (Rin j ) recession with job loss, occurring with probability πι . νι ) In the boom state, any firm generates revenue equivalent to h + (1−h)(1− units 1−ι of the single consumption good, if it is safe, and h + (1 − h)ν , if it is risky, with ν > 0 by assumption.