Brown Bag Seminar: Green investments under scenario uncertainty, ambiguity aversion, and learning

We take the point of view of investors who have to decide the time to enter into a green energy project or to sell a coal power plant. Profits and costs are functions of the values of risk factors, such as the price of fuel, electricity and carbon, whose distribution heavily depends on the future climate scenario. We assume that agents can acquire information about the scenario only partially and progressively, by observing a signal such as the carbon price or the greenhouse gas emissions. The fact that the scenario is not known by the agents introduces ambiguity: we identify every scenario with a different probability measure and consider the smooth model of decision-making under ambiguity aversion of Klibanoff et al. (2005). We investigate the resulting maxmin problem and show that it admits a solution under given conditions. We then aim to numerically solve the problem.