Investment Decision Making Under Deep Uncertainty : Application to Climate Change
While agreeing on the choice of an optimal investment decision is already difficult for any diverse group of actors, priorities, and world views, the presence of deep uncertainties further challenges the decision-making framework by questioning the...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2013
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| Online Access: | http://documents.worldbank.org/curated/en/2012/09/16708533/investment-decision-making-under-deep-uncertainty-application-climate-change http://hdl.handle.net/10986/12028 |
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okr-10986-12028 |
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oai_dc |
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Digital Repository |
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Foreign Institution |
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Digital Repositories |
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World Bank Open Knowledge Repository |
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World Bank |
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English en_US |
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AFFORESTATION AIR AIR TEMPERATURE ANNUAL RAINFALL APPLICATION TO CLIMATE CHANGE ATMOSPHERE ATMOSPHERIC RESEARCH BOARD MEMBERS CALCULATION CAPACITY BUILDING CATCHMENT AREA CLIMATE CLIMATE CHANGE CLIMATE CHANGE ADAPTATION CLIMATE CHANGE DAMAGES CLIMATE CHANGE IMPACT CLIMATE CHANGE INFORMATION CLIMATE CHANGE MITIGATION CLIMATE CHANGE PROJECTIONS CLIMATE CHANGE SCENARIOS CLIMATE CHANGES CLIMATE CONDITIONS CLIMATE DATA CLIMATE EFFECTS CLIMATE IMPACTS CLIMATE INDICATORS CLIMATE INFORMATION CLIMATE MODEL CLIMATE MODELERS CLIMATE MODELING CLIMATE MODELS CLIMATE POLICIES CLIMATE PROJECTIONS CLIMATE RESPONSE CLIMATE RISK CLIMATE RISK ASSESSMENT CLIMATE SCENARIOS CLIMATE SCIENCE CLIMATE SENSITIVE CLIMATE SENSITIVITY CLIMATE SIGNAL CLIMATE STATISTICS CLIMATE SYSTEM CLIMATE UNCERTAINTY CLIMATE VARIABILITY CLIMATE VARIABLES CLIMATE VULNERABILITIES CLIMATE VULNERABILITY CLIMATES CLIMATIC CHANGES CLIMATIC PARAMETERS CO CO2 COASTAL AREAS COASTAL ZONES CONVECTION COPE WITH CLIMATE CHANGE COST BENEFIT ANALYSIS COST-BENEFIT COST-BENEFIT ANALYSES COST-BENEFIT ANALYSIS COST-BENEFIT FRAMEWORK DAMAGES DECISION MAKERS DECISION MAKING DECISION MAKING PROCESS DECISION MAKING PROCESSES DECISION PROCESS DECREASE IN RAINFALL DEEP UNCERTAINTY DISCOUNT RATE DISCOUNT RATES ECOLOGICAL SYSTEMS ECOSYSTEM EMISSION EMISSION SCENARIO EMISSION SCENARIOS EMISSIONS ENERGY EFFICIENCY ENERGY PRODUCTION ENERGY SECURITY ENERGY USE ENVIRONMENTAL GROUPS EXTREME EVENTS FINANCIAL MARKETS FLOOD CONTROL FLOOD MANAGEMENT FLOOD PROTECTION FLOOD RISK FLOODS FORECAST CLIMATE CHANGE FOREST FOREST MANAGEMENT FORESTRY FORESTRY SECTOR FUTURE CLIMATE CHANGE FUTURE CLIMATE CHANGES GCM GHG GLACIERS GLOBAL CLIMATE GLOBAL CLIMATE CHANGE GLOBAL MEAN TEMPERATURE GLOBAL SCALE GLOBAL WARMING GREENHOUSE GREENHOUSE GAS GREENHOUSE GAS EMISSIONS GREENHOUSE GASES GROUNDWATER LEVEL HURRICANE HURRICANE INTENSITY HURRICANE PROTECTION HURRICANES ICE IMPACT OF CLIMATE IMPACT OF CLIMATE CHANGE IMPACTS OF CLIMATE CHANGE INCOME INFORMATION ON CLIMATE INSURANCE INSURANCE COMPANIES INSURANCE INDUSTRY INVESTMENT DECISIONS INVESTMENT STRATEGIES IPCC JOBS LAKE LEVEL LAKE LEVELS LAKES LAND MANAGEMENT LOWER COSTS LOWER RAINFALL MONSOON MONSOONS NEGATIVE IMPACTS OCEANS PALEOCLIMATE PHYSICS PORTFOLIO PRECIPITATION PRESENT VALUE PROBABILITY DISTRIBUTION PROBABILITY DISTRIBUTIONS PROBABILITY OF OCCURRENCE QUANTITATIVE ANALYSIS RAIN RAINFALL RAINFALL INTENSITY RAINY DAYS REGIONAL CLIMATE RENEWABLE ENERGY RESPONSE TO CLIMATE CHANGE RISK AVERSION RISK MANAGEMENT RUNOFF SAFE WATER SALINE INTRUSION SCENARIOS SCIENTIFIC INFORMATION SEA LEVEL RISE SEA WALLS STAKEHOLDER INVOLVEMENT STAKEHOLDER PARTICIPATION STORM SURGE STORMS SUMMER TEMPERATURE TEMPERATURE TEMPERATURE CHANGE TEMPERATURE CHANGES TEMPERATURE VARIABILITY TEMPORAL SCALES TIMBER MANAGEMENT TROPICS UNCERTAINTIES URBAN WATER URBAN WATER MANAGEMENT UTILITY FUNCTION UTILITY FUNCTIONS WASTEWATER SYSTEMS WATER AVAILABILITY WATER CONSUMPTION WATER DEMAND WATER DEVELOPMENT WATER INFRASTRUCTURE WATER MANAGEMENT WATER MANAGERS WATER RESOURCES WATER SUPPLY WATER USE WATER USERS WEATHER WEATHER PATTERNS WORST-CASE WORST-CASE SCENARIOS |
| spellingShingle |
AFFORESTATION AIR AIR TEMPERATURE ANNUAL RAINFALL APPLICATION TO CLIMATE CHANGE ATMOSPHERE ATMOSPHERIC RESEARCH BOARD MEMBERS CALCULATION CAPACITY BUILDING CATCHMENT AREA CLIMATE CLIMATE CHANGE CLIMATE CHANGE ADAPTATION CLIMATE CHANGE DAMAGES CLIMATE CHANGE IMPACT CLIMATE CHANGE INFORMATION CLIMATE CHANGE MITIGATION CLIMATE CHANGE PROJECTIONS CLIMATE CHANGE SCENARIOS CLIMATE CHANGES CLIMATE CONDITIONS CLIMATE DATA CLIMATE EFFECTS CLIMATE IMPACTS CLIMATE INDICATORS CLIMATE INFORMATION CLIMATE MODEL CLIMATE MODELERS CLIMATE MODELING CLIMATE MODELS CLIMATE POLICIES CLIMATE PROJECTIONS CLIMATE RESPONSE CLIMATE RISK CLIMATE RISK ASSESSMENT CLIMATE SCENARIOS CLIMATE SCIENCE CLIMATE SENSITIVE CLIMATE SENSITIVITY CLIMATE SIGNAL CLIMATE STATISTICS CLIMATE SYSTEM CLIMATE UNCERTAINTY CLIMATE VARIABILITY CLIMATE VARIABLES CLIMATE VULNERABILITIES CLIMATE VULNERABILITY CLIMATES CLIMATIC CHANGES CLIMATIC PARAMETERS CO CO2 COASTAL AREAS COASTAL ZONES CONVECTION COPE WITH CLIMATE CHANGE COST BENEFIT ANALYSIS COST-BENEFIT COST-BENEFIT ANALYSES COST-BENEFIT ANALYSIS COST-BENEFIT FRAMEWORK DAMAGES DECISION MAKERS DECISION MAKING DECISION MAKING PROCESS DECISION MAKING PROCESSES DECISION PROCESS DECREASE IN RAINFALL DEEP UNCERTAINTY DISCOUNT RATE DISCOUNT RATES ECOLOGICAL SYSTEMS ECOSYSTEM EMISSION EMISSION SCENARIO EMISSION SCENARIOS EMISSIONS ENERGY EFFICIENCY ENERGY PRODUCTION ENERGY SECURITY ENERGY USE ENVIRONMENTAL GROUPS EXTREME EVENTS FINANCIAL MARKETS FLOOD CONTROL FLOOD MANAGEMENT FLOOD PROTECTION FLOOD RISK FLOODS FORECAST CLIMATE CHANGE FOREST FOREST MANAGEMENT FORESTRY FORESTRY SECTOR FUTURE CLIMATE CHANGE FUTURE CLIMATE CHANGES GCM GHG GLACIERS GLOBAL CLIMATE GLOBAL CLIMATE CHANGE GLOBAL MEAN TEMPERATURE GLOBAL SCALE GLOBAL WARMING GREENHOUSE GREENHOUSE GAS GREENHOUSE GAS EMISSIONS GREENHOUSE GASES GROUNDWATER LEVEL HURRICANE HURRICANE INTENSITY HURRICANE PROTECTION HURRICANES ICE IMPACT OF CLIMATE IMPACT OF CLIMATE CHANGE IMPACTS OF CLIMATE CHANGE INCOME INFORMATION ON CLIMATE INSURANCE INSURANCE COMPANIES INSURANCE INDUSTRY INVESTMENT DECISIONS INVESTMENT STRATEGIES IPCC JOBS LAKE LEVEL LAKE LEVELS LAKES LAND MANAGEMENT LOWER COSTS LOWER RAINFALL MONSOON MONSOONS NEGATIVE IMPACTS OCEANS PALEOCLIMATE PHYSICS PORTFOLIO PRECIPITATION PRESENT VALUE PROBABILITY DISTRIBUTION PROBABILITY DISTRIBUTIONS PROBABILITY OF OCCURRENCE QUANTITATIVE ANALYSIS RAIN RAINFALL RAINFALL INTENSITY RAINY DAYS REGIONAL CLIMATE RENEWABLE ENERGY RESPONSE TO CLIMATE CHANGE RISK AVERSION RISK MANAGEMENT RUNOFF SAFE WATER SALINE INTRUSION SCENARIOS SCIENTIFIC INFORMATION SEA LEVEL RISE SEA WALLS STAKEHOLDER INVOLVEMENT STAKEHOLDER PARTICIPATION STORM SURGE STORMS SUMMER TEMPERATURE TEMPERATURE TEMPERATURE CHANGE TEMPERATURE CHANGES TEMPERATURE VARIABILITY TEMPORAL SCALES TIMBER MANAGEMENT TROPICS UNCERTAINTIES URBAN WATER URBAN WATER MANAGEMENT UTILITY FUNCTION UTILITY FUNCTIONS WASTEWATER SYSTEMS WATER AVAILABILITY WATER CONSUMPTION WATER DEMAND WATER DEVELOPMENT WATER INFRASTRUCTURE WATER MANAGEMENT WATER MANAGERS WATER RESOURCES WATER SUPPLY WATER USE WATER USERS WEATHER WEATHER PATTERNS WORST-CASE WORST-CASE SCENARIOS Hallegatte, Stéphane Shah, Ankur Lempert, Robert Brown, Casey Gill, Stuart Investment Decision Making Under Deep Uncertainty : Application to Climate Change |
| relation |
Policy Research Working Paper; No. 6193 |
| description |
While agreeing on the choice of an
optimal investment decision is already difficult for any
diverse group of actors, priorities, and world views, the
presence of deep uncertainties further challenges the
decision-making framework by questioning the robustness of
all purportedly optimal solutions. This paper summarizes the
additional uncertainty that is created by climate change,
and reviews the tools that are available to project climate
change (including downscaling techniques) and to assess and
quantify the corresponding uncertainty. Assuming that
climate change and other deep uncertainties cannot be
eliminated over the short term (and probably even over the
longer term), it then summarizes existing decision-making
methodologies that are able to deal with climate-related
uncertainty, namely cost-benefit analysis under uncertainty,
cost-benefit analysis with real options, robust decision
making, and climate informed decision analysis. It also
provides examples of applications of these methodologies,
highlighting their pros and cons and their domain of
applicability. The paper concludes that it is impossible to
define the "best" solution or to prescribe any
particular methodology in general. Instead, a menu of
methodologies is required, together with some indications on
which strategies are most appropriate in which contexts.
This analysis is based on a set of interviews with
decision-makers, in particular World Bank project leaders,
and on a literature review on decision-making under
uncertainty. It aims at helping decision-makers identify
which method is more appropriate in a given context, as a
function of the project's lifetime, cost, and vulnerability. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Hallegatte, Stéphane Shah, Ankur Lempert, Robert Brown, Casey Gill, Stuart |
| author_facet |
Hallegatte, Stéphane Shah, Ankur Lempert, Robert Brown, Casey Gill, Stuart |
| author_sort |
Hallegatte, Stéphane |
| title |
Investment Decision Making Under Deep Uncertainty : Application to Climate Change |
| title_short |
Investment Decision Making Under Deep Uncertainty : Application to Climate Change |
| title_full |
Investment Decision Making Under Deep Uncertainty : Application to Climate Change |
| title_fullStr |
Investment Decision Making Under Deep Uncertainty : Application to Climate Change |
| title_full_unstemmed |
Investment Decision Making Under Deep Uncertainty : Application to Climate Change |
| title_sort |
investment decision making under deep uncertainty : application to climate change |
| publisher |
World Bank, Washington, DC |
| publishDate |
2013 |
| url |
http://documents.worldbank.org/curated/en/2012/09/16708533/investment-decision-making-under-deep-uncertainty-application-climate-change http://hdl.handle.net/10986/12028 |
| _version_ |
1764418787885449216 |
| spelling |
okr-10986-120282021-04-23T14:02:59Z Investment Decision Making Under Deep Uncertainty : Application to Climate Change Hallegatte, Stéphane Shah, Ankur Lempert, Robert Brown, Casey Gill, Stuart AFFORESTATION AIR AIR TEMPERATURE ANNUAL RAINFALL APPLICATION TO CLIMATE CHANGE ATMOSPHERE ATMOSPHERIC RESEARCH BOARD MEMBERS CALCULATION CAPACITY BUILDING CATCHMENT AREA CLIMATE CLIMATE CHANGE CLIMATE CHANGE ADAPTATION CLIMATE CHANGE DAMAGES CLIMATE CHANGE IMPACT CLIMATE CHANGE INFORMATION CLIMATE CHANGE MITIGATION CLIMATE CHANGE PROJECTIONS CLIMATE CHANGE SCENARIOS CLIMATE CHANGES CLIMATE CONDITIONS CLIMATE DATA CLIMATE EFFECTS CLIMATE IMPACTS CLIMATE INDICATORS CLIMATE INFORMATION CLIMATE MODEL CLIMATE MODELERS CLIMATE MODELING CLIMATE MODELS CLIMATE POLICIES CLIMATE PROJECTIONS CLIMATE RESPONSE CLIMATE RISK CLIMATE RISK ASSESSMENT CLIMATE SCENARIOS CLIMATE SCIENCE CLIMATE SENSITIVE CLIMATE SENSITIVITY CLIMATE SIGNAL CLIMATE STATISTICS CLIMATE SYSTEM CLIMATE UNCERTAINTY CLIMATE VARIABILITY CLIMATE VARIABLES CLIMATE VULNERABILITIES CLIMATE VULNERABILITY CLIMATES CLIMATIC CHANGES CLIMATIC PARAMETERS CO CO2 COASTAL AREAS COASTAL ZONES CONVECTION COPE WITH CLIMATE CHANGE COST BENEFIT ANALYSIS COST-BENEFIT COST-BENEFIT ANALYSES COST-BENEFIT ANALYSIS COST-BENEFIT FRAMEWORK DAMAGES DECISION MAKERS DECISION MAKING DECISION MAKING PROCESS DECISION MAKING PROCESSES DECISION PROCESS DECREASE IN RAINFALL DEEP UNCERTAINTY DISCOUNT RATE DISCOUNT RATES ECOLOGICAL SYSTEMS ECOSYSTEM EMISSION EMISSION SCENARIO EMISSION SCENARIOS EMISSIONS ENERGY EFFICIENCY ENERGY PRODUCTION ENERGY SECURITY ENERGY USE ENVIRONMENTAL GROUPS EXTREME EVENTS FINANCIAL MARKETS FLOOD CONTROL FLOOD MANAGEMENT FLOOD PROTECTION FLOOD RISK FLOODS FORECAST CLIMATE CHANGE FOREST FOREST MANAGEMENT FORESTRY FORESTRY SECTOR FUTURE CLIMATE CHANGE FUTURE CLIMATE CHANGES GCM GHG GLACIERS GLOBAL CLIMATE GLOBAL CLIMATE CHANGE GLOBAL MEAN TEMPERATURE GLOBAL SCALE GLOBAL WARMING GREENHOUSE GREENHOUSE GAS GREENHOUSE GAS EMISSIONS GREENHOUSE GASES GROUNDWATER LEVEL HURRICANE HURRICANE INTENSITY HURRICANE PROTECTION HURRICANES ICE IMPACT OF CLIMATE IMPACT OF CLIMATE CHANGE IMPACTS OF CLIMATE CHANGE INCOME INFORMATION ON CLIMATE INSURANCE INSURANCE COMPANIES INSURANCE INDUSTRY INVESTMENT DECISIONS INVESTMENT STRATEGIES IPCC JOBS LAKE LEVEL LAKE LEVELS LAKES LAND MANAGEMENT LOWER COSTS LOWER RAINFALL MONSOON MONSOONS NEGATIVE IMPACTS OCEANS PALEOCLIMATE PHYSICS PORTFOLIO PRECIPITATION PRESENT VALUE PROBABILITY DISTRIBUTION PROBABILITY DISTRIBUTIONS PROBABILITY OF OCCURRENCE QUANTITATIVE ANALYSIS RAIN RAINFALL RAINFALL INTENSITY RAINY DAYS REGIONAL CLIMATE RENEWABLE ENERGY RESPONSE TO CLIMATE CHANGE RISK AVERSION RISK MANAGEMENT RUNOFF SAFE WATER SALINE INTRUSION SCENARIOS SCIENTIFIC INFORMATION SEA LEVEL RISE SEA WALLS STAKEHOLDER INVOLVEMENT STAKEHOLDER PARTICIPATION STORM SURGE STORMS SUMMER TEMPERATURE TEMPERATURE TEMPERATURE CHANGE TEMPERATURE CHANGES TEMPERATURE VARIABILITY TEMPORAL SCALES TIMBER MANAGEMENT TROPICS UNCERTAINTIES URBAN WATER URBAN WATER MANAGEMENT UTILITY FUNCTION UTILITY FUNCTIONS WASTEWATER SYSTEMS WATER AVAILABILITY WATER CONSUMPTION WATER DEMAND WATER DEVELOPMENT WATER INFRASTRUCTURE WATER MANAGEMENT WATER MANAGERS WATER RESOURCES WATER SUPPLY WATER USE WATER USERS WEATHER WEATHER PATTERNS WORST-CASE WORST-CASE SCENARIOS While agreeing on the choice of an optimal investment decision is already difficult for any diverse group of actors, priorities, and world views, the presence of deep uncertainties further challenges the decision-making framework by questioning the robustness of all purportedly optimal solutions. This paper summarizes the additional uncertainty that is created by climate change, and reviews the tools that are available to project climate change (including downscaling techniques) and to assess and quantify the corresponding uncertainty. Assuming that climate change and other deep uncertainties cannot be eliminated over the short term (and probably even over the longer term), it then summarizes existing decision-making methodologies that are able to deal with climate-related uncertainty, namely cost-benefit analysis under uncertainty, cost-benefit analysis with real options, robust decision making, and climate informed decision analysis. It also provides examples of applications of these methodologies, highlighting their pros and cons and their domain of applicability. The paper concludes that it is impossible to define the "best" solution or to prescribe any particular methodology in general. Instead, a menu of methodologies is required, together with some indications on which strategies are most appropriate in which contexts. This analysis is based on a set of interviews with decision-makers, in particular World Bank project leaders, and on a literature review on decision-making under uncertainty. It aims at helping decision-makers identify which method is more appropriate in a given context, as a function of the project's lifetime, cost, and vulnerability. 2013-01-02T19:49:27Z 2013-01-02T19:49:27Z 2012-09 http://documents.worldbank.org/curated/en/2012/09/16708533/investment-decision-making-under-deep-uncertainty-application-climate-change http://hdl.handle.net/10986/12028 English en_US Policy Research Working Paper; No. 6193 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research |