DP10730 Averting Catastrophes: The Strange Economics of Scylla and Charybdis
|Author(s):||Ian Martin, Robert Pindyck|
|Publication Date:||July 2015|
|Keyword(s):||bioterrorism, catastrophes, catastrophic events, climate change, disasters, epidemics, nuclear terrorism, pandemics, policy objectives, willingness to pay|
|JEL(s):||D81, Q5, Q54|
|Programme Areas:||Public Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=10730|
Faced with numerous potential catastrophes---nuclear and bioterrorism, mega-viruses, climate change, and others---which should society attempt to avert? A policy to avert one catastrophe considered in isolation might be evaluated in cost-benefit terms. But because society faces multiple catastrophes, simple cost-benefit analysis fails: Even if the benefit of averting each one exceeds the cost, we should not necessarily avert them all. We explore the policy interdependence of catastrophic events, and develop a rule for determining which catastrophes should be averted and which should not.