Optimal Discount Rates for Investments in Mitigation and Adaptation
Rob Aalbers ()
CPB Discussion Paper from CPB Netherlands Bureau for Economic Policy Analysis
This paper develops a theory of asset pricing in which discount rates for investments in all assets, including adaptation and mitigation, are endogenously determined. Exploiting the characteristics of adaptation and mitigation in terms of climatic risk, I show that adaptation requires a lower discount rate, whereas mitigation does not. Inspection of the Ramsey rule reveals that the social discount rate equals the social rate of return on optimally-invested aggregate wealth minus the risk premium on that wealth. This risk premium compensates investors for bearing market risk and the risk of unfavorable changes in the economy resulting from climate change. This paper functions as an update of Discussion Paper 126 .
JEL-codes: G11 G12 H43 Q51 Q54 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
https://www.cpb.nl/sites/default/files/publicaties ... ion-and-adaption.pdf (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:cpb:discus:257
Access Statistics for this paper
More papers in CPB Discussion Paper from CPB Netherlands Bureau for Economic Policy Analysis Contact information at EDIRC.
Bibliographic data for series maintained by ().