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The Economic and Policy Consequences of CatastrophesRobert S. PindyckMassachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER) Neng WangColumbia Business School - Finance and Economics September 2009 NBER Working Paper No. w15373 Abstract: 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.
Number of Pages in PDF File: 43 working papers seriesDate posted: September 28, 2009Suggested CitationContact Information
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