What is the expected value of preventing climate change

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Reference no: EM13853905

The government is contemplating to implement actions to prevent climate change.

If no action is taken then climate change will happen with a probability of 20%. There is a probability of 100-20 that there will be no climate change. We will not be able to tell if there is climate change until 86 years from today.

In 86 years, we will know if there is climate change but it would be too late to do anything about it if climate change takes place. If there is climate change then the world will suffer a loss of $5 billion a year forever starting in year 86 +1.

Scientist says that we can prevent climate change for sure by reducing emissions of CO2 in year 1. The cost of reducing emissions is $131 million.

Assuming the interest rate is 14.1%, what is the expected value of preventing climate change?

Reference no: EM13853905

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