Innovation and information acquisition under time inconsistency and uncertainty

This paper analyzes the impact of hyperbolic discounting preferences on theagent's information acquisition decision who wants to undertake a potentialdangerous activity for human health or the environment. We find that belowcertain discount rate threshold, an agent prefers ignoring information andcontinuing his project. On the other hand, above this threshold, it is optimal forhim to acquire information, and the investment for acquiring the information isincreasing with the discount rate. We then conclude that hyperbolic discountingpreferences limit the information acquisition. Moreover, we explain that the lackof self-control induced by hyperbolic discounting preferences also restraints theinformation acquisition. Finally, we analyze the efficiency of the strict liabilityrule and the negligence rule to motivate the agent to acquire information.Innovation, information acquisition, uncertainty, self-control, time inconsistency,liability rules

Innovation and Information Acquisition Under Time Inconsistency and Uncertainty

We propose to analyse the hyperbolic discounting preferences effect on the innovator's research investment decision. Investing in research allows him to acquire information, and then to reduce the uncertainty of the risks of his project. We find that whatever the innovator's preferences, that is hyperbolic or time-consistent, there exists a research investment constraint that limits the information acquisition. However, even if the information is free, while a time-consistent agent always acquires information, a hyperbolic agent may prefer staying ignorant. We also emphasize that hyperbolic discounting preferences induce and information precision constraint that leads the hyperbolic innovator to ignore the information whilethe time-consistent innovator gets it. Moreover, the possibility that the agent has a commitment power in the future strengthens this ignorance strategy. Finally, we investigate the impact of existing liability rules on the innovator's decision to acquire information.Innovation, information acquisition, uncertainty, self-control, time inconsistency, liability rules

Electricity, carbon and weather in France: where do we stand ?

As a tool to fight long run changes in climate the European Union explicitly introduced the emission trading scheme (EU ETS) on January 1, 2005, which aimed at reducing carbon emission by 8% by 2012, and was designed to operate in two phases. Using data related to the first phase, this article investigates the role that the EU ETS plays in the power generation market by taking into account the existence of possible cross-spillovers between the French carbon and the French electricity spot markets, the spot prices of natural gas and of oil, and climatic conditions in France and elsewhere. Results show that there is no short run relationship between the electricity and carbon returns, while there is a long run relationship. However, this relationship suffers from a disequilibrium in that the electricity price readjust in the long run. We also find that while there are own mean and own volatility spillovers in the two markets, there are no cross own mean and own volatility spillovers, indicating that the electricity spot market and the carbon spot market are not integrated. Finally, results underline the limited impact of weather on the interconnection of these markets.Carbon market, Electricity, Weather, Multivariate GARCH

Electricity, carbon and weather in France: where do we stand ?

As a tool to fight long run changes in climate the European Union explicitly introduced the emission trading scheme (EU ETS) on January 1, 2005, which aimed at reducing carbon emission by 8% by 2012, and was designed to operate in two phases. Using data related to the first phase, this article investigates the role that the EU ETS plays in the power generation market by taking into account the existence of possible cross-spillovers between the French carbon and the French electricity spot markets, the spot prices of natural gas and of oil, and climatic conditions in France and elsewhere. Results show that there is no short run relationship between the electricity and carbon returns, while there is a long run relationship. However, this relationship suffers from a disequilibrium in that the electricity price readjust in the long run. We also find that while there are own mean and own volatility spillovers in the two markets, there are no cross own mean and own volatility spillovers, indicating that the electricity spot market and the carbon spot market are not integrated. Finally, results underline the limited impact of weather on the interconnection of these markets

Innovation and information acquisition under time inconsistency and uncertainty

International audienceWhen an agent invests in new industrial activities, he has alimited initial knowledge on his project's returns. Acquiringinformation allows him both to reduce the uncertainty on thedangerousness of this project and to limit potential damages onpeople health and on the environment that it might cause. In thispaper, we study whether there exist situations where the agentdoes not acquire information. We find that an agent withtime-consistent preferences, as well as an agent with hyperbolicones will acquire information unless its cost exceeds the directbenefit they could get with this information. Nevertheless, ahyperbolic agent may remain strategically ignorant and, when hedoes acquire information, he will acquire less than a timeconsistent type. Moreover, a hyperbolic discounting type whobehaves as a time-consistent agent in the future is more inclinedto stay ignorant. We then emphasize that this strategic ignorancedepends on the degree of the information's precision. Finally, weanalyse the role that existing liability rules could play as anincentive to acquire information under uncertainty and regardingthe form of the agent's preferences

Editorial Insurance and adaptation to climate change

This special issue brings together proceedings of the workshop on Insurance and Adaptation to Climate Change, organized by the Ecole Polytechnique and the French Environmental and Energy Management Agency (ADEME) on March 13 2007, in Paris (France), under the sponsorship of the AXA-Risk Foundation Chair of Large Risks in Insurance, the EDF-Ecole Polytechnique Chair of Sustainable Development, the FFSA and The Geneva Association.International audienc

Innovation and information acquisition under time inconsistency and uncertainty ∗

We propose to analyse the hyperbolic discounting preferences effect on the innovator's research investment decision. Investing in research allows him to acquire information, and then to reduce the uncertainty of the risks of his project. We find that whatever the innovator's preferences, that is hyperbolic or time-consistent, there exists a research investment constraint that limits the information acquisition. However, even if the information is free, while a time-consistent agent always acquires information, a hyperbolic agent may prefer staying ignorant. We also emphasize that hyperbolic discounting preferences induce an information precision constraint that leads the hyperbolic innovator to ignore the information while the time-consistent innovator gets it. Moreover, the possibility that the agent has a commitment power in the future strengthens this ignorance strategy. Finally, we investigate the impact of existing liability rules on the innovator's decision to acquire information