Preventing Controversial Catastrophes

90 Pages Posted: 23 Jul 2018 Last revised: 21 Feb 2019

See all articles by Steven D. Baker

Steven D. Baker

University of Virginia - McIntire School of Commerce

Burton Hollifield

Carnegie Mellon University - David A. Tepper School of Business

Emilio Osambela

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: 2018-07-19

Abstract

In a market-based democracy, we model different constituencies that disagree regarding the likelihood of economic disasters. Costly public policy initiatives to reduce or eliminate disasters are assessed relative to private alternatives presented by financial markets. Demand for such public policies falls as much as 40% with disagreement, and crowding out by private insurance drives most of the reduction. As support for disaster-reducing policy jumps in periods of disasters, costly policies may be adopted only after disasters occur. In some scenarios constituencies may even demand policies oriented to increase disaster risk if these policies introduce speculative opportunities.

Keywords: Crowding out, Disagreement, Disaster risk, Government policy, Willingness to pay

JEL Classification: G01, G18, H21, H23

Suggested Citation

Baker, Steven D. and Hollifield, Burton and Osambela, Emilio, Preventing Controversial Catastrophes (2018-07-19). FEDS Working Paper No. 2018-052. Available at SSRN: https://ssrn.com/abstract=3217788 or http://dx.doi.org/10.17016/FEDS.2018.052

Steven D. Baker (Contact Author)

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States

HOME PAGE: http://faculty.comm.virginia.edu/sdb7e/

Burton Hollifield

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States
(412) 268-6505 (Phone)
(412) 268-6837 (Fax)

Emilio Osambela

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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