The Economic and Policy Consequences of Catastrophes

43 Pages Posted: 28 Sep 2009  

Robert S. Pindyck

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Neng Wang

Columbia Business School - Finance and Economics

Multiple version iconThere are 2 versions of this paper

Date Written: September 2009

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.

Suggested Citation

Pindyck, Robert S. and Wang, Neng, The Economic and Policy Consequences of Catastrophes (September 2009). NBER Working Paper No. w15373. Available at SSRN: https://ssrn.com/abstract=1478791

Robert S. Pindyck (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
Cambridge, MA 02139
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617-253-6641 (Phone)
617-258-6855 (Fax)

HOME PAGE: http://web.mit.edu/rpindyck/www/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Neng Wang

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

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