Stranding ahoy? Heterogeneous transition beliefs and capital investment choices

• DOI: 10.1016/j.jebo.2023.10.028
• Publication Date: 2023-11-07T20:22:37Z
• Authors: Louison Cahen-Fourot; Emanuele Campiglio; Louis Daumas; Michael Gregor Miess; Andrew Yardley
• Keywords: Investment; Investment Decisions

Individuals have heterogeneous beliefs regarding the future speed and shape of 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 expectations around dominant narrative, or 'market norm', with their dispersion increasing over finite planning horizon. Our analytical numerical results suggest that belief heterogeneity can significantly affect share investments, strength its effects non-linearly correlated market norms. show behaviour tends be more sensitive shocks short-term, rather than long-term, heterogeneity, highlighting importance setting credible short-term targets. Finally, find interact strongly in non-trivial ways measures short-termism, agents' farsightedness not necessarily leading less carbon-intensive investments under high heterogeneity.