Managing Catastrophic Risk

21 Pages Posted: 16 Jun 2012

See all articles by Howard Kunreuther

Howard Kunreuther

University of Pennsylvania - Operations, Information and Decisions Department; National Bureau of Economic Research (NBER)

Geoffrey M. Heal

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: June 2012

Abstract

A principal reason that losses from catastrophic risks have been increasing over time is that more individuals and firms are locating in harm's way while not taking appropriate protective measures. Several behavioural biases lead decision-makers not to invest in adaptation measures until after it is too late. In an interdependent world with no intervention by the public sector, it may be economically rational for those at risk not to invest in protective measures. Risk management strategies that involve private-public partnerships that address these issues may help in reducing future catastrophic losses. These may include multi-year insurance contracts, well-enforced regulations, third-party inspections, and alternative risk transfer instruments such as catastrophe bonds.

Suggested Citation

Kunreuther, Howard C. and Heal, Geoffrey M., Managing Catastrophic Risk (June 2012). NBER Working Paper No. w18136. Available at SSRN: https://ssrn.com/abstract=2085124

Howard C. Kunreuther (Contact Author)

University of Pennsylvania - Operations, Information and Decisions Department ( email )

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National Bureau of Economic Research (NBER)

Geoffrey M. Heal

Columbia Business School - Finance and Economics ( email )

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212-316-9219 (Fax)

HOME PAGE: http://www.gsb.columbia.edu/faculty/gheal/

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