Prepare river ecosystems for an uncertain future

Saving for an uncertain future.

T he units that are subject to selection pressure in evolutionary biology are ‘‘strategies,’’ which are conditional actions (for example, do P if X occurs; otherwise do Q). In contrast, the units in economics (they are called ‘‘people’’) select strategies from available menus so as to further their projects and purposes. If evolutionary dynamics involves mindless competition among strategies, e...

Discounting an uncertain future

The objective of this paper is to determine the socially optimal discount rate for public investment projects that entail costs and benefits in the very long run. We suppose that there is an exogenous process for the growth of consumption per capita, which is stochastic. We first evaluate the determinants of the discount rate for a specific horizon when the representative agent has a recursive ...

Flood-risk management strategies for an uncertain future: living with Rhine River floods in The Netherlands?

Social pressure on alluvial plains and deltas is large, both from an economic point of view and from a nature conservation point of view. Gradually, flood risks increase with economic development, because the expected damage increases, and with higher dikes, because the flooding depth increases. Global change, changing social desires, but also changing views, require a revision of flood-risk ma...

An uncertain future for cardiovascular drug development?

Rationally discounting an uncertain future

J. Doyne Farmer & John Geanakoplos Assessing the relative value of a benefit (or harm) in the future vs. the present is a fundamental problem in economics1. The conventional approach is to discount the future exponentially. This can be motivated by the opportunity cost relative to an investment paying fixed interest2. In contrast, real interest rates vary randomly, so the resulting effective di...