How likely is a catastrophic event that would substantially reduce
the capital stock, GDP, and wealth? How much should society be
willing to pay to reduce the probability or impact of a catastrophe?
We answer these questions and provide a framework for policy
analysis using a general equilibrium model of production, capital
accumulation, and household preferences. Calibrating the model to
economic and financial data, we estimate the mean arrival rate of
shocks and their size distribution, the tax on consumption society
would accept to limit the maximum size of a catastrophic shock, and
the cost to insure against its impact.
Pindyck, Robert S., and Neng Wang.
"The Economic and Policy Consequences of Catastrophes."
American Economic Journal: Economic Policy,
Criteria for Decision-Making under Risk and Uncertainty
Capital; Investment; Capacity
Business Fluctuations; Cycles
Insurance; Insurance Companies; Actuarial Studies
Business Taxes and Subsidies including sales and value-added (VAT)
Climate; Natural Disasters; Global Warming