Stranding ahoy? Heterogeneous transition beliefs and capital investment choices
Individuals have heterogeneous beliefs regarding the future speed and shape of the low-carbon transition. In this paper, we study to what extent opinion diversity matters for aggregate capital investment decisions. We develop a model where firms formulate heterogeneous expectations around a dominant...
Published in: | Journal of Economic Behavior & Organization |
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Online Access: | http://hdl.handle.net/10754/695660 https://doi.org/10.1016/j.jebo.2023.10.028 |
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ftkingabdullahun:oai:repository.kaust.edu.sa:10754/695660 2024-05-19T07:49:24+00:00 Stranding ahoy? Heterogeneous transition beliefs and capital investment choices Cahen-Fourot, Louison Campiglio, Emanuele Daumas, Louis Miess, Michael Yardley, Andrew KAUST - King Abdullah University of Science and Technology, Kingdom of Saudi Arabia Center for Desert Agriculture Biological and Environmental Science and Engineering (BESE) Division Roskilde University, Denmark WU Institute for Ecological Economics, Austria University of Bologna, Italy RFF-CMCC European Institute on Economics and the Environment, Italy LSE Grantham Research Institute on Climate Change and the Environment, United Kingdom Centre International de Recherche en Environnement et Développement, France Federal Environment Agency Austria, Austria Institute for Advanced Studies, Austria Offshore Renewable Energy Catapult, United Kingdom 2023-11-07 application/pdf http://hdl.handle.net/10754/695660 https://doi.org/10.1016/j.jebo.2023.10.028 unknown Elsevier BV doi:10.1016/j.jebo.2023.10.028 2-s2.0-85175711288 0167-2681 Journal of Economic Behavior and Organization 535-567 http://hdl.handle.net/10754/695660 216 NOTICE: this is the author’s version of a work that was accepted for publication in Journal of Economic Behavior and Organization. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Economic Behavior and Organization, [216, , (2023-11-07)] DOI:10.1016/j.jebo.2023.10.028 . © 2023. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/ 2026-11-07 Article 2023 ftkingabdullahun https://doi.org/10.1016/j.jebo.2023.10.028 2024-04-24T00:28:02Z Individuals have heterogeneous beliefs regarding the future speed and shape of the low-carbon transition. In this paper, we study to what extent opinion diversity matters for aggregate capital investment decisions. We develop a model where firms formulate heterogeneous expectations around a dominant narrative, or ‘market norm’, with their dispersion increasing over a finite planning horizon. Our analytical and numerical results suggest that belief heterogeneity can significantly affect the share of low-carbon investments, with the strength of its effects non-linearly correlated to market norms. We show that investment behaviour tends to be more sensitive to shocks to short-term, rather than long-term, belief heterogeneity, highlighting the importance of setting credible short-term targets. Finally, we find beliefs to interact strongly and in non-trivial ways with measures of short-termism, with increasing agents' farsightedness not necessarily leading to less carbon-intensive investments under high heterogeneity. The replication package for the paper is available at https://github.com/SMOOTH-ERC/stranding_ahoy. We would like to thank Giorgos Galanis, Francesco Lamperti, Hubert Massoni, Esther Marie Shears, Alessandro Spiganti, Marko Stojanovic and Roberta Terranova, as well as participants to the 2021 EAERE and the 2022 ESEE conferences. The research leading to these results has received funding from the European Research Council (ERC) under the European Union's Horizon 2020 Research and Innovation Programme (Grant agreement No 853050 - SMOOTH). EC, LCF and MM also gratefully acknowledge the Oesterreichische Nationalbank (Jubiläumsfonds projects 17641 and 18651). Article in Journal/Newspaper Terranova King Abdullah University of Science and Technology: KAUST Repository Journal of Economic Behavior & Organization 216 535 567 |
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Open Polar |
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King Abdullah University of Science and Technology: KAUST Repository |
op_collection_id |
ftkingabdullahun |
language |
unknown |
description |
Individuals have heterogeneous beliefs regarding the future speed and shape of the low-carbon transition. In this paper, we study to what extent opinion diversity matters for aggregate capital investment decisions. We develop a model where firms formulate heterogeneous expectations around a dominant narrative, or ‘market norm’, with their dispersion increasing over a finite planning horizon. Our analytical and numerical results suggest that belief heterogeneity can significantly affect the share of low-carbon investments, with the strength of its effects non-linearly correlated to market norms. We show that investment behaviour tends to be more sensitive to shocks to short-term, rather than long-term, belief heterogeneity, highlighting the importance of setting credible short-term targets. Finally, we find beliefs to interact strongly and in non-trivial ways with measures of short-termism, with increasing agents' farsightedness not necessarily leading to less carbon-intensive investments under high heterogeneity. The replication package for the paper is available at https://github.com/SMOOTH-ERC/stranding_ahoy. We would like to thank Giorgos Galanis, Francesco Lamperti, Hubert Massoni, Esther Marie Shears, Alessandro Spiganti, Marko Stojanovic and Roberta Terranova, as well as participants to the 2021 EAERE and the 2022 ESEE conferences. The research leading to these results has received funding from the European Research Council (ERC) under the European Union's Horizon 2020 Research and Innovation Programme (Grant agreement No 853050 - SMOOTH). EC, LCF and MM also gratefully acknowledge the Oesterreichische Nationalbank (Jubiläumsfonds projects 17641 and 18651). |
author2 |
KAUST - King Abdullah University of Science and Technology, Kingdom of Saudi Arabia Center for Desert Agriculture Biological and Environmental Science and Engineering (BESE) Division Roskilde University, Denmark WU Institute for Ecological Economics, Austria University of Bologna, Italy RFF-CMCC European Institute on Economics and the Environment, Italy LSE Grantham Research Institute on Climate Change and the Environment, United Kingdom Centre International de Recherche en Environnement et Développement, France Federal Environment Agency Austria, Austria Institute for Advanced Studies, Austria Offshore Renewable Energy Catapult, United Kingdom |
format |
Article in Journal/Newspaper |
author |
Cahen-Fourot, Louison Campiglio, Emanuele Daumas, Louis Miess, Michael Yardley, Andrew |
spellingShingle |
Cahen-Fourot, Louison Campiglio, Emanuele Daumas, Louis Miess, Michael Yardley, Andrew Stranding ahoy? Heterogeneous transition beliefs and capital investment choices |
author_facet |
Cahen-Fourot, Louison Campiglio, Emanuele Daumas, Louis Miess, Michael Yardley, Andrew |
author_sort |
Cahen-Fourot, Louison |
title |
Stranding ahoy? Heterogeneous transition beliefs and capital investment choices |
title_short |
Stranding ahoy? Heterogeneous transition beliefs and capital investment choices |
title_full |
Stranding ahoy? Heterogeneous transition beliefs and capital investment choices |
title_fullStr |
Stranding ahoy? Heterogeneous transition beliefs and capital investment choices |
title_full_unstemmed |
Stranding ahoy? Heterogeneous transition beliefs and capital investment choices |
title_sort |
stranding ahoy? heterogeneous transition beliefs and capital investment choices |
publisher |
Elsevier BV |
publishDate |
2023 |
url |
http://hdl.handle.net/10754/695660 https://doi.org/10.1016/j.jebo.2023.10.028 |
genre |
Terranova |
genre_facet |
Terranova |
op_relation |
doi:10.1016/j.jebo.2023.10.028 2-s2.0-85175711288 0167-2681 Journal of Economic Behavior and Organization 535-567 http://hdl.handle.net/10754/695660 216 |
op_rights |
NOTICE: this is the author’s version of a work that was accepted for publication in Journal of Economic Behavior and Organization. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Economic Behavior and Organization, [216, , (2023-11-07)] DOI:10.1016/j.jebo.2023.10.028 . © 2023. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/ 2026-11-07 |
op_doi |
https://doi.org/10.1016/j.jebo.2023.10.028 |
container_title |
Journal of Economic Behavior & Organization |
container_volume |
216 |
container_start_page |
535 |
op_container_end_page |
567 |
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1799467891812204544 |