Pricing greenhouse gas emissions is a risk management problem involving making trade-offs between consumption today and unknown and potentially catastrophic damages in the (distant) future. The optimal price is necessarily based on society’s willingness to substitute consumption across time and across uncertain states of nature. A large body of work in macroeconomics and finance attempts to infer societal preferences using the observed behavior of asset prices, concluding that the standard preference specifications are inconsistent with observed asset valuations. This literature has developed a richer set of preferences that are more consistent with asset price behavior. We will explore the implications of these richer preference specifications for the optimal pricing of carbon emissions.
4:30 p.m. Tea, VinH 120
5:00 - 6:00 p.m., VinH 16