Mitigating Disaster Risks in the Age of Climate Change

52 Pages Posted: 13 May 2020 Last revised: 1 Jul 2021

See all articles by Harrison G. Hong

Harrison G. Hong

Columbia University, Graduate School of Arts and Sciences, Department of Economics; National Bureau of Economic Research (NBER)

Neng Wang

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

Jinqiang Yang

Shanghai University of Finance and Economics

Multiple version iconThere are 2 versions of this paper

Date Written: July 1, 2021

Abstract

Emissions control cannot address the consequences of global warming for weather disasters until decades later. We model regional-level mitigation or adaptation, which reduces disaster risks to capital stock in the interim. Disaster arrivals increase belief regarding the adverse consequences of global warming and mitigation spending. Competitive markets underprovide such spending because of externalities. Capital taxes to fund mitigation restores first-best. We apply our model to country-level mitigation of GDP growth damages from tropical cyclones using flood controls. We calibrate it based on historical damage distributions and climate model projections of more frequent major cyclones from global warming. One major cyclone arrival significantly increases pessimistic beliefs, leading to higher taxes, lower Tobin's q, and reduced growth.

Keywords: Weather Disasters, Growth, Learning, Mitigation, Market Failure, Climate Change

JEL Classification: H56, G01, E20

Suggested Citation

Hong, Harrison G. and Wang, Neng and Yang, Jinqiang, Mitigating Disaster Risks in the Age of Climate Change (July 1, 2021). Available at SSRN: https://ssrn.com/abstract=3572457 or http://dx.doi.org/10.2139/ssrn.3572457

Harrison G. Hong (Contact Author)

Columbia University, Graduate School of Arts and Sciences, Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Neng Wang

Columbia Business School - Finance and Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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Asian Bureau of Finance and Economic Research (ABFER) ( email )

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Jinqiang Yang

Shanghai University of Finance and Economics ( email )

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China

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