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Pricing the Planet's FutureThe Economics of Discounting in an Uncertain World$
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Christian Gollier

Print publication date: 2012

Print ISBN-13: 9780691148762

Published to Princeton Scholarship Online: October 2017

DOI: 10.23943/princeton/9780691148762.001.0001

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Evaluation of Risky Projects

Evaluation of Risky Projects

Chapter:
(p.185) 12 Evaluation of Risky Projects
Source:
Pricing the Planet's Future
Author(s):

Christian Gollier

Publisher:
Princeton University Press
DOI:10.23943/princeton/9780691148762.003.0012

This chapter provides a short overview of the main concepts, ideas, and tools that have been produced by more than fifty years of research in the evaluation of risky projects and risky assets. It is devoted to the analysis of the risk premium for risky projects that should be added to the discount rate for safe projects. Here, valuing risky projects introduces a new dimension to the theory of investment. We have shown that this new dimension can be treated by transforming each future cash flow into its certainty equivalent. By doing this, one is back to the problem of evaluating a safe project, and the discount rates discussed in this book can be used.

Keywords:   risky projects, risk, risk premium, safe projects, theory of investment, project valuation, risky assets, uncertain cash flows, risk management

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