Comparing Alternative Policies Against Environmental Catastrophes

21 Pages Posted: 30 Jan 2017

See all articles by Timothy J. Besley

Timothy J. Besley

London School of Economics & Political Science (LSE) - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Avinash Dixit

Princeton University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: January 2017

Abstract

We construct a model with three features important in the context of major environmental catastrophes: (1) the distribution of possible damage has a fat tail, (2) the probability of the catastrophic event increases as greenhouse gases accumulate, (3) a technological solution may emerge making conservation efforts unnecessary. We solve the model numerically for plausible values of the parameters, and evaluate the tradeoffs between alternative policies such as prevention, mitigation, and technological fixes.

Keywords: catastrophic risk, climate change

JEL Classification: Q54, Q58

Suggested Citation

Besley, Timothy J. and Dixit, Avinash K., Comparing Alternative Policies Against Environmental Catastrophes (January 2017). CEPR Discussion Paper No. DP11802, Available at SSRN: https://ssrn.com/abstract=2908215

Timothy J. Besley (Contact Author)

London School of Economics & Political Science (LSE) - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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Avinash K. Dixit

Princeton University - Department of Economics ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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