Averting Catastrophes: The Strange Economics of Scylla and Charybdis
American Economic Review
vol. 105,
no. 10, October 2015
(pp. 2947-85)
(Complimentary)
Abstract
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. (JEL D61, Q51, Q54)Citation
Martin, Ian W. R., and Robert S. Pindyck. 2015. "Averting Catastrophes: The Strange Economics of Scylla and Charybdis." American Economic Review, 105 (10): 2947-85. DOI: 10.1257/aer.20140806Additional Materials
JEL Classification
- D61 Allocative Efficiency; Cost-Benefit Analysis
- Q51 Valuation of Environmental Effects
- Q54 Climate; Natural Disasters and Their Management; Global Warming