Welfare Costs of Catastrophes: Lost Consumption and Lost Lives
<jats:title>Abstract</jats:title> <jats:p>Most of the literature on the economics of catastrophes assumes that such events cause a reduction in the stream of consumption, as opposed to widespread fatalities. Here we show how to incorporate death in a model of catast...
| Main Authors: | , |
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| Other Authors: | |
| Format: | Article |
| Language: | English |
| Published: |
Oxford University Press (OUP)
2021
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| Online Access: | https://hdl.handle.net/1721.1/133700 |
| _version_ | 1811078915476684800 |
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| author | Martin, Ian WR Pindyck, Robert S |
| author2 | Sloan School of Management |
| author_facet | Sloan School of Management Martin, Ian WR Pindyck, Robert S |
| author_sort | Martin, Ian WR |
| collection | MIT |
| description | <jats:title>Abstract</jats:title>
<jats:p>Most of the literature on the economics of catastrophes assumes that such events cause a reduction in the stream of consumption, as opposed to widespread fatalities. Here we show how to incorporate death in a model of catastrophe avoidance, and how a catastrophic loss of life can be expressed as a welfare-equivalent drop in consumption. We examine how potential fatalities affect the policy interdependence of catastrophic events and ‘willingness to pay’ (WTP) to avoid them. Using estimates of the ‘value of a statistical life’ (VSL), we find the WTP to avoid major pandemics, and show that it is large (10% or more of annual consumption) and partly driven by the risk of macroeconomic contractions. Likewise, the risk of pandemics significantly increases the WTP to reduce consumption risk. Our work links the VSL and consumption disaster literatures.</jats:p> |
| first_indexed | 2024-09-23T11:07:14Z |
| format | Article |
| id | mit-1721.1/133700 |
| institution | Massachusetts Institute of Technology |
| language | English |
| last_indexed | 2024-09-23T11:07:14Z |
| publishDate | 2021 |
| publisher | Oxford University Press (OUP) |
| record_format | dspace |
| spelling | mit-1721.1/1337002023-09-27T17:27:23Z Welfare Costs of Catastrophes: Lost Consumption and Lost Lives Martin, Ian WR Pindyck, Robert S Sloan School of Management <jats:title>Abstract</jats:title> <jats:p>Most of the literature on the economics of catastrophes assumes that such events cause a reduction in the stream of consumption, as opposed to widespread fatalities. Here we show how to incorporate death in a model of catastrophe avoidance, and how a catastrophic loss of life can be expressed as a welfare-equivalent drop in consumption. We examine how potential fatalities affect the policy interdependence of catastrophic events and ‘willingness to pay’ (WTP) to avoid them. Using estimates of the ‘value of a statistical life’ (VSL), we find the WTP to avoid major pandemics, and show that it is large (10% or more of annual consumption) and partly driven by the risk of macroeconomic contractions. Likewise, the risk of pandemics significantly increases the WTP to reduce consumption risk. Our work links the VSL and consumption disaster literatures.</jats:p> 2021-10-27T19:56:16Z 2021-10-27T19:56:16Z 2021 2021-04-02T13:13:20Z Article http://purl.org/eprint/type/JournalArticle https://hdl.handle.net/1721.1/133700 en 10.1093/EJ/UEAA099 Economic Journal Creative Commons Attribution-Noncommercial-Share Alike http://creativecommons.org/licenses/by-nc-sa/4.0/ application/pdf Oxford University Press (OUP) NBER |
| spellingShingle | Martin, Ian WR Pindyck, Robert S Welfare Costs of Catastrophes: Lost Consumption and Lost Lives |
| title | Welfare Costs of Catastrophes: Lost Consumption and Lost Lives |
| title_full | Welfare Costs of Catastrophes: Lost Consumption and Lost Lives |
| title_fullStr | Welfare Costs of Catastrophes: Lost Consumption and Lost Lives |
| title_full_unstemmed | Welfare Costs of Catastrophes: Lost Consumption and Lost Lives |
| title_short | Welfare Costs of Catastrophes: Lost Consumption and Lost Lives |
| title_sort | welfare costs of catastrophes lost consumption and lost lives |
| url | https://hdl.handle.net/1721.1/133700 |
| work_keys_str_mv | AT martinianwr welfarecostsofcatastropheslostconsumptionandlostlives AT pindyckroberts welfarecostsofcatastropheslostconsumptionandlostlives |