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on Utility Models and Prospect Theory |
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Issue of 2020‒10‒26
24 papers chosen by |
| By: | Corina Birghila; Tim J. Boonen; Mario Ghossoub |
| Abstract: | We examine a problem of demand for insurance indemnification, when the insured is sensitive to ambiguity and behaves according to the Maxmin-Expected Utility model of Gilboa and Schmeidler (1989), whereas the insurer is a (risk-averse or risk-neutral) Expected-Utility maximizer. We characterize optimal indemnity functions both with and without the customary ex ante no-sabotage requirement on feasible indemnities, and for both concave and linear utility functions for the two agents. This allows us to provide a unifying framework in which we examine the effects of the no-sabotage condition, marginal utility of wealth, belief heterogeneity, as well as ambiguity (multiplicity of priors) on the structure of optimal indemnity functions. In particular, we show how the singularity in beliefs leads to an optimal indemnity function that involves full insurance on an event to which the insurer assigns zero probability, while the decision maker assigns a positive probability. We examine several illustrative examples, and we provide numerical studies for the case of a Wasserstein and a Renyi ambiguity set. |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2010.07383&r=all |
| By: | Raúl López-Pérez; Eli Spiegelman |
| Abstract: | A preference reversal (PR) refers to behavior that violates revealed preference or is simply incoherent – i.e., not explainable by a rational ordering. In a classical PR experiment, for instance, participants often exhibit greater risk aversion in a Choice-based revelation procedure than in an Evaluation-based one, i.e., choose the safer of two gambles but express a higher monetary valuation for the riskier. We conjecture that PRs are partly due to the interaction between attention and task mode, and explore three compatible explanations using eye-tracking techniques. Explanation 1 says that difficult tasks require more time to be performed without ‘mistakes’. Those who pay scarcely more attention to Evaluation than Choice, therefore, are more likely to act incoherently. Our data corroborate such a prediction. Explanation 2 assumes that the subjective value of (i) a bet or (ii) any of its attributes (prize and winning probability) depends on the attention paid to it. PRs occur when people allocate attention to different elements across tasks. In line with recent models of drift-diffusion, we find evidence consistent with point (i): a higher focus on the safer bet during Choice predicts PRs. In contrast, little evidence supports the idea (ii) that the share of fixations on probabilities versus prizes influences behavior or PRs. Explanation 3, finally, states that the nature of the tasks may affect the comparisons people make between the options, which are relevant for behavior. For instance, the cognitive difficulty of pricing a bet in Evaluation could distract attention from the relative risk across bets, thus reducing risk aversion. In our design, both bets are visible on the computer screen in both tasks, and subjects make substantially more transitions between bets in Choice. Yet this is observed among all participants, not only the reversers. |
| Keywords: | Eye-tracking; Limited Attention; Mental Effort; Rationality; Reversals |
| JEL: | D01 D81 D83 D91 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:ipp:wpaper:2001&r=all |
| By: | Sanjit Dhami; Hajimoladarvish |
| Abstract: | The evidence shows source-dependent entitlement to income sources and individuals are reluctant to part with income they feel more entitled to, e.g., earned labor income. Taxpayers may also be more reluctant to part with tax payments (evade more) from income sources they feel more entitled to- a form of mental accounting. We embed two main hypotheses within a rigorous theoretical model based on prospect theory. From incomes sources they feel more entitled to, taxpayers experience (i) greater loss aversion from paying taxes, and (ii) lower moral costs of evasion. We confirm the predictions of our model through MTurk experiments. Evasion is increasing in the tax rate and decreasing in the audit penalty. Moral costs influence taxpayers decisions. Loss aversion, measured “directly” for the first time for each individual in an evasion experiment, reduces evasion, as predicted by our theory. Loss aversion, risk aversion, and their interaction, are critical determinants of evasion. |
| Keywords: | mental accounting, tax evasion, loss aversion, morality, prospect theory, risk-aversion |
| JEL: | C91 C92 D82 D91 G21 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8606&r=all |
| By: | Jugal Garg; Thorben Tr\"obst; Vijay V. Vazirani |
| Abstract: | The Arrow-Debreu extension of the classic Hylland-Zeckhauser scheme for a one-sided matching market -- called ADHZ in this paper -- has natural applications but has instances which do not admit equilibria. By introducing approximation, we define the $\epsilon$-approximate ADHZ model. We give the following results. * Existence of equilibrium for the $\epsilon$-approximate ADHZ model under linear utility functions. The equilibrium satisfies Pareto optimality, approximate envy-freeness and incentive compatibility in the large. * A combinatorial polynomial time algorithm for an $\epsilon$-approximate ADHZ equilibrium for the case of dichotomous, and more generally bi-valued, utilities. * An instance of ADHZ, with dichotomous utilities and a strongly connected demand graph, which does not admit an equilibrium. * A rational convex program for HZ under dichotomous utilities; a combinatorial polynomial time algorithm for this case was given by Vazirani and Yannakakis (2020). The $\epsilon$-approximate ADHZ model fills a void, described in the paper, in the space of general mechanisms for one-sided matching markets. |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2009.10320&r=all |
| By: | Laurie Bréban (PHARE - Philosophie, Histoire et Analyse des Représentations Économiques - UP1 - Université Panthéon-Sorbonne); André Lapidus (PHARE - Philosophie, Histoire et Analyse des Représentations Économiques - UP1 - Université Panthéon-Sorbonne) |
| Abstract: | The few pages that Adam Smith devoted to lotteries, mainly in the Wealth of Nations (1776) did not receive much attention. They nonetheless constituted an opportunity to introduce a sophisticated analysis of individual decision under risk. Through various examples, Smith pointed out a risk-seeking attitude, figured out in the paper in terms of inverse stochastic dominance. However, it is well-known that a contradiction occurs between such an attitude and the principle of an asymmetric sensitivity to favorable and unfavorable events, expressed by a concave function, introduced in the Theory of Moral Sentiments (1759). We argue that an appropriate solution to this difficulty should rest on Smith's emphasis on a universal tendency to overestimate the chance of gain, which leads to favor a rank-dependent utility approach within which optimism toward risk can compensate asymmetric sensibility in order to produce some kind of risk-seeking. The question raised by the coexistence of various attitudes toward risk illustrated by the figures of the entrepreneur (typically, the "projector" and the "sober man") gives rise to an extensive analysis, which aims at explaining, on moral grounds, how an initial attitude of risk-seeking can generate prudence before being transformed into risk-aversion. |
| Keywords: | asymmetric sensitivity,Adam Smith,risk,lotteries,stochastic dominance,rank-dependent utility,prudence,decision |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-00914222&r=all |
| By: | Pratiti Chatterjee; Fabio Milani |
| Abstract: | What are the effects of beliefs, sentiment, and uncertainty, over the business cycle? To answer this question, we develop a behavioral New Keynesian macroeconomic model, in which we relax the assumption of rational expectations. Agents are, instead, boundedly rational: they have a finite-planning horizon, and they learn about the economy over time. Moreover, we allow agents to have a potentially asymmetric loss function in forecasting, which creates a direct channel for expected variances to affect the economy. In forming expectations, agents may be subject to shifts in optimism and pessimism (sentiment) and their beliefs may be influenced by their perceptions about future uncertainty. We estimate the behavioral model using Bayesian methods and exploit a large number of subjective expectation series (both point and density forecasts) at different horizons from the Survey of Professional Forecasters. We find that sentiment shocks are the key source of business cycle fluctuations. Shifts in perceived uncertainty can also affect real activity and inflation through a confidence channel, as they play an important role in belief formation. Overall, the results shed light on the importance of behavioral forces over the business cycles, and on the contribution and interaction of first-moment - sentiment - shocks versus second-moment - perceived uncertainty - shocks. |
| Keywords: | uncertainty shocks, sentiment, animal spirits, learning, behavioural New Keynesian model, sources of business cycle fluctuations, observed survey expectations, optimism and pessimism in business cycles, probability density forecasts |
| JEL: | C32 E32 E50 E52 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8608&r=all |
| By: | Friedrich Hubalek; Walter Schachermayer |
| Abstract: | We analyze the convergence of expected utility under the approximation of the Black-Scholes model by binomial models. In a recent paper by D. Kreps and W. Schachermayer a surprising and somewhat counter-intuitive example was given: such a convergence may, in general, fail to hold true. This counterexample is based on a binomial model where the i.i.d. logarithmic one-step increments have strictly positive third moments. This is the case, when the up-tick of the log-price is larger than the down-tick. In the paper by D. Kreps and W. Schachermayer it was left as an open question how things behave in the case when the down-tick is larger than the up-tick and -- most importantly -- in the case of the symmetric binomial model where the up-tick equals the down-tick. Is there a general positive result of convergence of expected utility in this setting? In the present note we provide a positive answer to this question. It is based on some rather fine estimates of the convergence arising in the Central Limit Theorem. |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2009.09751&r=all |
| By: | Goldin, Jacob; Reck, Daniel |
| Abstract: | In many settings, decision-makers’ behavior is observed to vary based on seemingly arbitrary factors. Such framing effects cast doubt on the welfare conclusions drawn from revealed preference analysis. We relax the assumptions underlying that approach to accommodate settings in which framing effects are present. Plausible restrictions of varying strength permit either partial- or point-identification of preferences for the decision-makers who choose consistently across frames. Recovering population preferences requires understanding the empirical relationship between decision-makers’ preferences and their sensitivity to the frame. We develop tools for studying this relationship and illustrate them with data on automatic enrollment into pension plans. |
| JEL: | C10 D60 I30 |
| Date: | 2019–10–11 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:101443&r=all |
| By: | Gruber, Noam |
| Abstract: | Prolonged rapid growth, i.e. a "catching-up" process, is known to be accompanied by high rates of household saving. This phenomenon is central in explaining the direction of international capital flows and trade imbalances in the past several decades, yet it is very much in contradiction to prevailing macroeconomic theory. This paper finds that a standard life-cycle model, even when integrated with uncertainty about future growth and credit constraints, is completely unable to replicate the relations between growth and saving as seen in the data. However, adding utility from relative consumption to the model allows for the full replication of these relations. |
| Keywords: | Life Cycle, Saving Growth, Open Economy Growth, Household Saving, Life Cycle Models and Saving, Relative Income Hypothesis |
| JEL: | D91 E21 F43 O11 |
| Date: | 2020–10–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:103349&r=all |
| By: | Ahmed, M. F.; Gao, Y.; Satchell, S. |
| Abstract: | Existing approaches have considered characteristics of Environmental, Social and Governance (ESG) focused investments from a return-oriented perspective, not paying due consideration to investors’ utility and how ESG features impact utility. We contribute to this literature by providing a model that captures the implications for investment if ESG is valued by the investor as well as wealth. We first present the necessary theory and discuss the rather challenging problem of calibration of the various risk and preference parameters. Using Thomson Reuters ESG data from 2002 to 2018, we provide further empirical evidence that investors who value ESG factors have improved utilities which does not come at the cost of return performance. |
| Keywords: | ESG, Sustainable Investing, Demand Model, Investors’ Utility |
| JEL: | G11 G12 G14 G23 G34 |
| Date: | 2020–10–07 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2093&r=all |
| By: | Dagsvik, John K. (Department of Health Management and Health Economics) |
| Abstract: | This paper investigates the set of equilibria in models of social interaction and Quantal Response Equilibrium (QRE). First, we discuss how models of social interaction can be viewed as a special case of QRE. Subsequently, we establish criteria that characterize the set of equilibria in models of social interaction and QRE. Finally, we establish conditions for convergence of sequential stochastic game models to QRE when players learn about the aggregate behavior of the players. |
| Keywords: | Random utility models; Behavioral game theory; Social interaction; Quantal Response Equilibrium |
| JEL: | C02 C25 C62 C72 C73 |
| Date: | 2020–10–06 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:oslohe:2020_005&r=all |
| By: | E. Boguslavskaya; M. Boguslavsky; D. Muravey |
| Abstract: | How should one construct a portfolio from multiple mean-reverting assets? Should one add an asset to portfolio even if the asset has zero mean reversion? We consider a position management problem for an agent trading multiple mean-reverting assets. We solve an optimal control problem for an agent with power utility, and present a semi-explicit solution. The nearly explicit nature of the solution allows us to study the effects of parameter mis-specification, and derive a number of properties of the optimal solution. |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2009.09816&r=all |
| By: | Tobias Rachidi |
| Abstract: | This paper studies the design of voting mechanisms in a setting with more than two alternatives and arbitrarily many voters who have generalized single-peaked preferences derived from median spaces as introduced in [Nehring and Puppe, 2007b]. This class of preferences is considerably larger than the well-known class of preferences that are single-peaked on a line. I characterize the voting rules that maximize ex-ante utilitarian welfare among all social choice functions satisfying strategy-proofness, anonymity, and surjectivity. The optimal mechanism takes the form of voting by properties, that is, the social choice is determined through a collection of binary votes on subsets of alternatives involving qualified majority requirements that reflect the characteristics of these subsets of alternatives. I illustrate my general optimality result by means of applications including, for instance, collective choice when preferences are single-peaked with respect to a tree. Finally, I emphasize the importance of my characterization result for the analysis of stable constitutions. |
| Keywords: | Voting; Generalized Single-Peaked Preferences; Mechanism Design |
| JEL: | D71 D72 D82 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_214&r=all |
| By: | Aubhik Khan; Latchezar Popov; B. Ravikumar |
| Abstract: | We study efficient risk sharing in a model where agents operate linear production technologies with private information about idiosyncratic productivity. Capital is the sole factor of production, and accumulable. We establish a time-invariant, one-to-one mapping between the capital allocated to an agent and his lifetime utility entitlement. The mapping implies properties that are distinct from those in models with private information about endowments. In contrast to the latter, the value of the risk-sharing arrangement in our model always remains above the autarky value. There is no need for long-term commitment. Further, in our model, there are no net expected transfers each period across individuals. This allows us to decentralize the efficient allocation into one-period insurance contracts that do not require long-term commitment on the part of the principal or agent. Furthermore, while the efficient allocation implies an increasing dispersion of lifetime utility entitlements and consumption, this need not lead to declines in individual consumption as in the endowment model. When technology is sufficiently productive, all individuals experience consumption growth. |
| Keywords: | Efficiency; Private information; Capital accumulation; Commitment; Immiseration; One-period contract |
| JEL: | D30 D52 D82 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:88818&r=all |
| By: | Nicole B\"auerle; Alexander Glauner |
| Abstract: | In this paper, we consider risk-sensitive Markov Decision Processes (MDPs) with Borel state and action spaces and unbounded cost under both finite and infinite planning horizons. Our optimality criterion is based on the recursive application of static risk measures. This is motivated by recursive utilities in the economic literature, has been studied before for the entropic risk measure and is extended here to an axiomatic characterization of suitable risk measures. We derive a Bellman equation and prove the existence of Markovian optimal policies. For an infinite planning horizon, the model is shown to be contractive and the optimal policy to be stationary. Moreover, we establish a connection to distributionally robust MDPs, which provides a global interpretation of the recursively defined objective function. Monotone models are studied in particular. |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2010.07220&r=all |
| By: | Dennis Guignet; Christoper Moore; Haoluan Wang |
| Abstract: | We propose a novel extension of existing semi-parametric approaches to examine spatial patterns of willingness to pay (WTP) and status quo effects, including tests for global spatial autocorrelation, spatial interpolation techniques, and local hotspot analysis. We are the first to formally account for the fact that observed WTP values are estimates, and to incorporate the statistical precision of those estimates into our spatial analyses. We demonstrate our two-step methodology using data from a stated preference survey that elicited values for improvements in water quality in the Chesapeake Bay and lakes in the surrounding watershed. Our methodology offers a flexible way to identify potential spatial patterns of welfare impacts, with the ultimate goal of facilitating more accurate benefit-cost and distributional analyses, both in terms of defining the appropriate extent of the market and in interpolating values within that market. |
| Keywords: | Bayesian; hotspot analysis; semi-parametric; spatial heterogeneity; stated preference; water quality |
| JEL: | C11 C14 Q51 Q53 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:nev:wpaper:wp202001&r=all |
| By: | Xi, Wenwen; Hayes, Dermot; Lence, Sergio Horacio |
| Abstract: | We study the variance risk premium (i.e., the difference between historical realized variance and the variance swap rate) in corn and soybean markets from 2010 through 2016. Variance risk is negatively priced for both commodities, but is more statistically significant for soybean than for corn. There are moderate commonalities in variance within the agricultural sector, but fairly weak commonalities between the agricultural and the equity sectors. Corn and soybean variance risk premia in dollar terms are time-varying and correlated with the variance swap rate. In contrast, agricultural commodity variance risk premia in log return terms are more likely to be constant and less correlated with the log variance swap rate. Variance and price (return) risk premia in agricultural markets are weakly correlated, and the correlation depends on the sign of the returns. The latter finding suggests that the variance risk is unspanned by commodity futures, i.e., it is an independent source of risk. The empirical results also suggest that the implied volatilities in corn and soybean futures market overestimate true expected volatility by approximately 15%. This has implications for derivative products, such as revenue insurance, that use these implied volatilities to calculate fair premia. |
| Date: | 2019–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genstf:201901010800001699&r=all |
| By: | Kathrin Goldmann (Institute of Transport Economics, Muenster); Jan Wessel (Institute of Transport Economics, Muenster) |
| Abstract: | Between cities and regions, not only cycling levels differ, but also the reactions of cyclists to adverse weather conditions. Using data from 122 automated bicycle counting stations in 30 German cities, and a composite index of adverse weather conditions that consists of air temperature, precipitation, wind speed, relative humidity, and cloud coverage, we calculate city-specific weather elasticities of the level of utilitarian cycling. The results show that these weather elasticities vary significantly between cities. Our next step is to analyze various determinants of weather elasticities, which reveals that the share of young inhabitants and the density of the cycle network have a positive impact on weather resilience. Based on the notion that resilience to adverse weather conditions reflects a revealed part of a city's bicycle culture, the weather elasticities can be used to create a ranking of bicycle cities. This ranking is positively correlated with a ranking based on the modal share of cycling, as well as with other rankings based on stated preference surveys or external conditions such as infrastructure or cycling safety. |
| Keywords: | Bicycle, weather elasticities, Germany, regional heterogeneity, bicycle city ranking, cycling culture |
| JEL: | R49 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:mut:wpaper:33&r=all |
| By: | Paganelli, Maria Pia; Simon, Fabrizio; Assistant, JHET |
| Abstract: | For Adam Smith a crime is not the result of a rational calculation of loss and gain, but the consequence of envy and a vain desire to parade wealth to attract the approbation of others, combined with a natural systematic bias in overestimating the probability of success. Similarly, Smith does not conceive of legal sanctions as a rational deterrent, but as deriving from the feeling of resentment. While the prevailing approach of the eighteenth century is a rational explanation of crime and a utilitarian use of punishment, Adam Smith instead builds his theory of criminal behavior and legal prosecution consistently on the sentiments. A well-functioning legal system is thus an unintended consequence of our desire to bring justice to the individual person, not the result of a rational calculation to promote the public good, just like a well-functioning economic system is the unintended consequence of our desire to better our own condition, not the result of a rational calculation to promote public good. |
| Date: | 2020–09–29 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:x82yh&r=all |
| By: | Zhang, nan; Qin, Botao |
| Abstract: | The formation of reference points has drawn increasing interest ever since the introduction of prospect theory. Given that most studies focus on tradable goods such as stocks, for which the prices are observable, while few have focused on environmental goods. This paper attempts to fill this gap in the literature in this regard. In our experiment, we divided the subjects into buyers and sellers and asked them to trade four PM 2.5 filters using the Becker–DeGroot–Marschak mechanism. We have two treatments in this experiment: a) the experience of seven weeks of heavy air pollution; and b) the receiving of information on the relationship between death rates and air pollution. The different bidding prices for the four PM 2.5 filters in these treatment groups make it possible to trace the adjustment of the reference points as a result of these treatments without having to know their precise values. Our results show that, for buyers, the heavy air pollution drives them to fully downwardly adjust their reference points on air quality. For sellers, however, the reference points adaptation caused by heavy pollution is not a full adaptation. Moreover, the new information on the damage to health from air pollution causes buyers to upwardly adjust their reference points on air quality but does not significantly change the sellers’ reference points. We show that, for both treatments, sellers are more reluctant to adjust their reference points on air quality than are buyers. Our results confirm the asymmetric reference point adaptation in that adaptation after a loss is harder than adaptation after a gain. |
| Keywords: | prospect theory; reference point; asymmetric adaptation; air pollution; BDM auction |
| JEL: | C90 D44 Q53 |
| Date: | 2020–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:102935&r=all |
| By: | Yuan Gao; Christian Kroer |
| Abstract: | This paper considers a linear Fisher market with $n$ buyers and a continuum of items. In order to compute market equilibria, we introduce (infinite-dimensional) convex programs over Banach spaces, thereby generalizing the Eisenberg-Gale convex program and its dual. Regarding the new convex programs, we establish existence of optimal solutions, the existence of KKT-type conditions, as well as strong duality. All these properties are established via non-standard arguments, which circumvent the limitations of duality theory in optimization over infinite-dimensional vector spaces. Furthermore, we show that there exists a pure equilibrium allocation, i.e., a division of the item space. Similar to the finite-dimensional case, a market equilibrium under the infinite-dimensional Fisher market is Pareto optimal, envy-free and proportional. We also show how to obtain the (a.e. unique) equilibrium price vector and a pure equilibrium allocation from the (unique) $n$-dimensional equilibrium bang-per-buck vector. When the item space is the unit interval $[0,1]$ and buyers have piecewise linear utilities, we show that $\epsilon$-approximate equilibrium prices can be computed in time polynomial in the market size and $\log \frac{1}{\epsilon}$. This is achieved by solving a finite-dimensional convex program using the ellipsoid method. To this end, we give nontrivial and efficient subgradient and separation oracles. For general buyer valuations, we propose computing market equilibrium using stochastic dual averaging, which finds an approximate equilibrium price vector with high probability. |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2010.03025&r=all |
| By: | Aditya Goenka; Lin Liu; Manh-Hung Nguyen |
| Abstract: | This paper studies optimal quarantines (can also be interpreted as lockdowns or selfisolation) when there is an infectious disease with SIS dynamics and infections can cause disease related mortality in a dynamic general equilibrium neoclassical growth framework. We characterize the optimal decision and the steady states and how these change with changes in effectiveness of quarantine, productivity of working from home, contact rate of disease and rate of mortality from the disease. A standard utilitarian welfare function gives the counter-intuitive result that increasing mortality reduces quarantines but increases mortality and welfare while economic outcomes and infections are largely unaffected. With an extended welfare function incorporating welfare loss due to disease related mortality (or infections generally) however, quarantines increase, and the decreasing infections reduce mortality and increase economic outcomes. Thus, there is no optimal trade-off between health and economic outcomes. We also study sufficiency conditions and provide the first results in economic models with SIS dynamics with disease related mortality - a class of models which are non-convex and have endogenous discounting so that no existing results are applicable |
| Keywords: | Infectious diseases, Covid-19, SIS model, mortality, sufficiency conditions, economic growth, lockdown, quarantine, self-isolation |
| JEL: | E13 E22 D50 D63 I10 I15 I18 O41 C61 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:liv:livedp:202025&r=all |
| By: | Greaves, Gerry |
| Abstract: | Climate-economy integrated assessment models are often used to assess the interaction between climate change effects and the economy. A simple but powerful model, DICE (Dynamic Integrated Climate-Economy) model, was developed at Yale. This is an easily accessible model that allows exploration of various parameters that affect long-term (years 2000-2300) climate change. The global economic model estimates the future growth of economic output tempered by abatement costs and climate change damages. It uses an optimization scheme to determine the CO2eq price over time that maximizes discounted utility of consumption. However, there are a few areas that may be improved. This paper addresses those areas. First, a model of renewable energy that explicitly accounts for the capital required for the transition is added. This has the effect of smoothing the beginning of the transition, and shows that we can afford the transition. Second, a modified damage function is used that shows a greater penalty for business as usual. Third, the growth model used in DICE results in a level of economic growth too high to be supported by historical data. A modified growth model is proposed based primarily on historical data from the Penn World Table that results in lower growth and a more rapid decline in growth rate. |
| Keywords: | economic growth, energy, climate |
| JEL: | Q43 Q54 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:103243&r=all |
| By: | Christian Tarsney; Teruji Thomas |
| Abstract: | Is the overall value of a world just the sum of values contributed by each value-bearing entity in that world? Additively separable axiologies (like total utilitarianism, prioritarianism, and critical level views) say 'yes', but non-additive axiologies (like average utilitarianism, rank-discounted utilitarianism, and variable value views) say 'no'. This distinction is practically important: additive axiologies support 'arguments from astronomical scale' which suggest (among other things) that it is overwhelmingly important for humanity to avoid premature extinction and ensure the existence of a large future population, while non-additive axiologies need not. We show, however, that when there is a large enough 'background population' unaffected by our choices, a wide range of non-additive axiologies converge in their implications with some additive axiology -- for instance, average utilitarianism converges to critical-level utilitarianism and various egalitarian theories converge to prioritiarianism. We further argue that real-world background populations may be large enough to make these limit results practically significant. This means that arguments from astronomical scale, and other arguments in practical ethics that seem to presuppose additive separability, may be truth-preserving in practice whether or not we accept additive separability as a basic axiological principle. |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2010.06842&r=all |