The Economic and Policy Consequences of Catastrophes

Robert S. Pindyck, Neng Wang

NBER Working Paper No. 15373
Issued in September 2009
NBER Program(s):   EEE   EFG   PE

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.

(310 K)

Published: forthcoming at the American Economic Journal: Economic Policy

This paper is available as PDF (310 K) or via email.

This paper was revised on October 30, 2012

Acknowledgments

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