Discounting, catastrophic risks management and vulnerability modeling

  • Authors:

  • Y. Ermoliev;T. Ermolieva;G. Fischer;M. Makowski;S. Nilsson;M. Obersteiner

  • Affiliations:

  • International Institute for Applied Systems Analysis, Laxenburg, Austria;International Institute for Applied Systems Analysis, Laxenburg, Austria;International Institute for Applied Systems Analysis, Laxenburg, Austria;International Institute for Applied Systems Analysis, Laxenburg, Austria;International Institute for Applied Systems Analysis, Laxenburg, Austria;International Institute for Applied Systems Analysis, Laxenburg, Austria

  • Venue:
  • Mathematics and Computers in Simulation
  • Year:
  • 2008

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Abstract

Traditional discounting dramatically affects the outcome of catastrophic risk management and spatio-temporal vulnerability modeling. The misperception of discount rates produces inadequate evaluations of risk management strategies, which may provoke catastrophes and significantly contribute to the increasing vulnerability of our society. This paper analyses the implication of potential catastrophic events on the choice of discounting. In particular, it shows the necessity of using proposed equivalent undiscounted stopping time criterion and Monte Carlo based stochastic optimization procedures.