Welfare Costs of Catastrophes: Lost Consumption and Lost Lives / Ian W.R. Martin, Robert S. Pindyck.

Format:

Book

Author/Creator:

Martin, Ian W.R.

Contributor:

National Bureau of Economic Research.

Pindyck, Robert S.

Series:

Working Paper Series (National Bureau of Economic Research) no. w26068.

NBER working paper series no. w26068

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Welfare Costs of Catastrophes

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2019.

Summary:

Most of the literature on the economics of catastrophes assumes that such events cause a reduction in the stream of consumption, as opposed to widespread fatalities. Here we show how to incorporate death in a model of catastrophe avoidance, and how a catastrophic loss of life can be expressed as a welfare-equivalent drop in wealth or consumption. We examine how potential fatalities affect the policy interdependence of catastrophic events and "willingness to pay" (WTP) to avoid them. Using estimates of the "value of a statistical life" (VSL), we find the WTP to avoid major pandemics, and show it is large (10% or more of annual consumption) and partly driven by the risk of macroeconomic contractions. Likewise, the risk of pandemics significantly increases the WTP to reduce consumption risk. Our work links the VSL and consumption disaster literatures.

Notes:

Print version record

July 2019.