Except for a few loonies, most agree that there is an imperative not to let the atmospheric load of CO2 grow indefinitely. “Doing nothing implies that risks are negligible. That position implies an absurd degree of certainty” [Wolf, Financial Times (27 Oct 2015)]. As some like to say, there is no planet B. The economics of climate change is far, far behind its science. Given the important role of uncertainty in climate change policy and the debilitating limitations of alternatives such as NPV or the “neoclassical” approach, i.e., the “integrated assessment models,” when it comes to uncertainty, the detour of ROA is unavoidable. The interface between ROA and climate change turns out to be rather explosive and reveals how deep the need for a response to climate change goes.

One can read in Chap. 11 of the WGIII AR5 IPCC report that REDD credits (REDD is for Reduced Emissions from Deforestation and Forest Degradation) “can represent a cost-effective option for mitigation with economic, social, and other environmental co-benefits, e.g., conservation of biodiversity and water resources” with the caveat that there is limited evidence for that and only medium agreement. In this chapter, using the ROA looking glass, we investigate some aspect of how to make REDD credits cost-effective and compare with what actually happens. Despite the apparent difference, there is more similarity between what the ROA approach would recommend and what takes place.

Many of the IPCC guidelines or recommendations are either not easy to implement or platitudes or paradoxical like recommending to wait for a disaster to occur before acting. Examples: "Effective risk management generally involves a portfolio of actions to reduce and transfer risk and to respond to events and disasters, as opposed to a singular focus on any one action or type of action (high confidence)." "The more astute and effective the investments made in mitigation and adaptation, the less will be the suffering." "Increases in exposure will result in higher direct economic losses from tropical cyclones. Losses will also depend on future changes in tropical cyclone frequency and intensity (high confidence)". "Post-disaster recovery and reconstruction provide an opportunity for reducing weather- and climate-related disaster risk and for improving adaptive capacity (high agreement, robust evidence)".

Books far too often come with answers only. They convey a warm feeling that everything is under control. This book is not in that tradition. Hopefully, it will inspire some to realize that the frontier of knowledge in ROA is only work in progress and at an early stage of progress. Unanswered questions are the prerequisites to change, progress, and even sometime scientific revolutions. This book is an invitation for those who think that ROA can make a difference to help making it go to the next level.

According to the present “scientific evidence,” the “unmanageable” is part of our possible futures. Mitigation of CO2 emissions is an imperative. There are many sources of emissions of greenhouse gases (GHGs), and however global the mitigation effort may be, it has a strong local component. The rest of the world has a vested interest in mitigation efforts everywhere. It is a case of “act locally but think globally.” Mitigation involves also transitioning to a greener economy. Adaptation, on the other hand, is the purview of individual countries. Their needs and situations differ widely. Most countries have an adaptive capacity gap, including the USA (Preston et al. 2011). That was eloquently illustrated by the devastation that Hurricane Katrina brought to New Orleans in August 2005. Still, the gap is as a rule more pronounced in poor countries, which are also the least equipped to fill it. Furthermore, adaptation intersects with other concerns: “Climate change adds to the list of stressors that challenge our ability to achieve the ecologic, economic and social objectives that define sustainable development” (IPCC 2007). This chapter discusses the interface between real option analysis (ROA) and the response to climate change in general terms. The interface is rather complex and involves quite a few moving parts. In this chapter those issues are discussed in general. A more pedestrian introduction to how to operationalize ROA in the context climate change investments can be found in Appendix B.

This chapter is openly polemical. This book would not exist if real options analysis (ROA) had progressed the way other fields of knowledge do. It did not. That has everything to do with the stifling impact of Black-Scholes on ROA. The modern form of financial option theory started around 1973 with Black-Scholes. The concept of real option was introduced soon afterward in 1977. After all these years, ROA is nowhere as developed as financial option theory. The difference of degree of advancement between the two is so huge that it begs to be explained. This is the theme of this chapter.

In this Appendix, we point to a major mistake and confusion pervasive in the world of real option. There are two COMPLETELY different things; both are called real options: one is the ROA which is the subject of this book and related somehow to Black-Scholes, and the other one is the McDonald-Siegel model which sets optimal conditions for investments under uncertainty. Failing to distinguish the two benefits neither ROA nor the problem of optimizing the conditions for investments under uncertainty.

This chapter reviews history of financial option from its origin with Bachelier and continuing with the contributions of Black-Scholes and Merton. The origin of the concept of real option (S. Myers) is also discussed. The relation (conceptual and mathematical) between financial and real option, as well as the concept of risk neutrality and its relevance for real options, is discussed ad nauseam. In the process, a mathematical framework for real option analysis (ROA) is developed. This chapter is somewhat math-intensive. Of particular importance for the rest of the book are the discussions of first-degree homogeneity and risk neutrality and their mathematical implications. Without the Black-Scholes formula, ROA would probably not exist. It was Black-Scholes who inspired Stewart Myers to introduce the concept of real options in his study of the value of a firm. He emphasized the importance of growth options in the valuation of a firm, and he called those options "real options." As a result, not only does ROA have its roots in the culture of corporate investments, but it also grew in that cobweb. The downside is that ROA is seen as a mere extension of financial options, when in fact it should be the opposite: financial options being the particularization to the world of finance of a broader concept, real options. When it comes to climate change policy, this distinction is fundamental, because it is what makes ROA applicable there.

The word prolegomena is defined as "a critical or discursive introduction to a book." This is what it means here but with a twist. The German philosopher Immanuel Kant (1724-1804) wrote Prolegomena zu einer jeden kunftigen Metaphysik, die als Wissenschaft wird auftreten konnen, or Prolegomena to Any Future Metaphysics That Will Be Able to Present Itself as a Science. In that book, Kant in a rather polemic way explained what he wanted to accomplish by writing a previous book, Critique of Pure Reason, which many think is his masterpiece but was poorly received at the time.

In this chapter the mathematical framework developed in Chap. 2 is used to apply ROA in an area for which extensions of Black-Scholes or NPV cannot be used: fat tail distributions, i.e., areas in distributions where extreme events reside. This chapter paves the way to the policy discussion of the response to climate change, where such distributions are pervasive.

Considerable research and policy development work has been conducted to construct methods and frameworks for ever denser sharing of radio spectrum. Since spectrum sharing necessarily constitutes a rearrangement of rights among stakeholders, considerable focus has been on examining the risks and incentives for license holders. But for spectrum sharing to be successful, it is critical to consider the incentives and risk for the entrants as well. This problem is challenging because the entrants are emergent entities that often do not participate in the policy or research debates. Because of this diversity, it is difficult to consider incentives, so this paper focuses instead on the risks faced by spectrum entrants and their mitigation. With clear understanding of risk and mitigation strategies associated, spectrum entrants can choose the method that maximize their utilities.

Microfinance is perceived as a way to provide the impoverished with access to credit, but does it provide a sustainable solution to the ever growing problem of urban poverty? Microfinance has found new visibility with the experience of the Grameen Bank in Bangladesh. The Grameen Bank is considered a model of microfinancial success leading to a Nobel Peace Prize in 2006. But microfinance has had a mix of success and failures and despite being present in every region of the world; it is poorly documented and understood. Scholars who want to get an informed understanding of the microfinance world will find themselves confronted with an abundance of anecdotal information, giving the misleading impression of a wealth of data but little in the form scientific data. For example, empowerment of women is the best documented aspect of microfinance. However important woman empowerment may be, it does not capture the totality of the impact of microfinance on poverty or on the economy. Microfinance is a unique instrument to fight poverty and the difference it has made is beyond debate, but is reliance on microfinance sustainable for developing countries?

In order for carbon credits awarded for reducing emissions from deforestation and degradation of forests (REDD) to be effective, they need to be competitive with alternative land uses. In the case of Southeast Asia, oil palm cultivation is one of the most lucrative possible land uses. Existing mechanisms for awarding certified emission reductions (CERs) might not be adequately flexible to changing commodity prices or to meet the needs of landowners who heavily discount future returns from their land. Real options could be a useful valuation tool for negotiating an annual contract that guarantees a minimum payment or “strike price” to the landowner depending on the potential returns from cultivation of their land. The real option based algorithm computes a competitive payment dependent on the relevant commodity prices contributing to land cover change. This article proposes a method whereby the risk is shared between the seller and buyer, providing a per hectare payment that favors the conservation of forests containing higher biomass per hectare.

Bacteria forming clusters in a Petri dish is a common example of emergent behavior, i.e. many seemingly simple bacteria, when under stress, form clusters through basic rules of interaction. Under suitable conditions, the clusters form spectacular patterns [1]. Those properties of bacteria have inspired a lot of modeling work, attempting to reproduce the patterns and make sense of them.

A position paper toward an important and urgent discussion on how best use the potential of Artificial Intelligence in the context of cybersecurity. AI is often mentioned in papers on cybersecurity. But what is meant is using pre-existing AI techniques in cybersecurity. AI techniques are developed around applications. Cybersecurity has never been an area of concentration in AI. In this paper we argue that cybersecurity calls for new and specific AI techniques developed with that kind of application in mind. In practice, this paper is based on a broad overview of different approaches, which have the potential to be game changers in cybersecurity. This paper focuses on web application security and advocates the use of Knowledge Based Systems, probabilistic reasoning and Bayesian updating to control the probability of false positives and false negatives.

Since the publication of Organization Science’s 1999 Special Issue on complexity theory, researchers have applied this paradigm to various organizational phenomena. In this paper, we examine post-merger and acquisition (M&A) executive turnover from a Complex Adaptive Systems (CAS) perspective. This lens integrates and subsumes the existing literature on this phenomenon, which is fragmented, incomplete, and lacking in an overarching theory. The observation of a power law distribution in target firm TMT rates for a sample of 70 U.S. acquisitions valued over US$ 1 billion from 1997 to 1999, at the height of the 1990s M&A wave, supports our interpretation.

This thesis examines the guidance that is being given to developing nations that are rapidly deploying information and communication technologies. It studied the African countries of Rwanda and Tunisia to draw lessons on their situation and potential methods of improving the situation. The thesis found that developing nations are often recommended to implement a conglomeration of existing rules and regulations found in other countries especially in European countries and in the United States. Developing countries are also recommended to create national CERTs, organizations of cybersecurity experts to coordinate a nation to respond to cyber incidents. The proposed rules and regulations are largely irrelevant for developing nations and the proposed missions of a CERT do not match the needs of those countries. In promoting better guidance, the thesis identifies and discusses several challenges. It finds policy makers in developing nations are aware of the cyber threat, and that the cyber threat is different and often smaller in less ICT developed nations even if they are using similar equipment and software. To help craft better recommendations, the thesis identifies the benefits of ICT especially in agriculture, education and government. These benefits are analyzed to determine whether they would be protected by current guidance and the analysis determines that protecting ICT use in government should be the priority. In crafting future guidance the challenges are that nations have differences in ICT architecture and ICT use, and developing nations have fewer resources but also they have different resources to use. Another such difference is the common lack of a private cybersecurity sector and different expectations of government. This thesis concludes with discussing unexpected results. The first is Rwandan policy makers desire good enough security and have a higher risk tolerance concerning cyber threats than is found in more developed nations. In addition, open source software can be a potential way to reduce the cost of cyberspace defense and this thesis makes an initial investigation. The lesson of the thesis is that cybersecurity strategy is not a one size fits all and so it must be customized for each country as each country is unique.

The major U.S. wireless operators already have announced their plans for the evolution of their networks towards 3G, but some uncertainties remain, such as emergence of new technologies (WiMAX and WLAN) and the consolidation among operators (AT&T Mobile and Sprint Nextel). The article discusses a real option based model for technology decisionsand applies it to the U.S. wireless industry as a case study. We also discuss what decisions must be made, what the outcomes are, and how the options model is validated. The preliminary results show that the evolution of wireless network technologies between generations (inter-generations migration scenario) is desirable (a positive net option value), but not desirable (a negative net option value) within generations (intra-generation migration scenario), in the U.S.