The Economic and Policy Consequences of Catastrophes
What is the likelihood that the U.S. will experience a devastating catastrophic event over the next few decades – something that would substantially reduce the capital stock, GDP and wealth? What does the possibility of such an event imply for the behavior of economic variables such as investment, i...
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| Format: | Working Paper |
| Language: | en_US |
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MIT Center for Energy and Environmental Policy Research
2010
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| Online Access: | http://hdl.handle.net/1721.1/51710 |
| _version_ | 1811091725145341952 |
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| author | Pindyck, Robert S. |
| author_facet | Pindyck, Robert S. |
| author_sort | Pindyck, Robert S. |
| collection | MIT |
| description | What is the likelihood that the U.S. will experience a devastating catastrophic event over the next few decades – something that would substantially reduce the capital stock, GDP and wealth? What does the possibility of such an event imply for the behavior of economic variables such as investment, interest rates, and equity prices? And how much should society be willing to pay to reduce the probability or likely impact of such an event? We address these questions using a general equilibrium model that describes production, capital accumulation, and household preferences, and includes as an integral part the possible arrival of catastrophic shocks. Calibrating the model to average values of economic and financial variables yields estimates of the implied expected mean arrival rate and impact distribution of catastrophic shocks. We also use the model to calculate the tax on consumption society would accept to reduce the probability or impact of a shock. |
| first_indexed | 2024-09-23T15:06:59Z |
| format | Working Paper |
| id | mit-1721.1/51710 |
| institution | Massachusetts Institute of Technology |
| language | en_US |
| last_indexed | 2024-09-23T15:06:59Z |
| publishDate | 2010 |
| publisher | MIT Center for Energy and Environmental Policy Research |
| record_format | dspace |
| spelling | mit-1721.1/517102019-04-12T23:35:59Z The Economic and Policy Consequences of Catastrophes Pindyck, Robert S. What is the likelihood that the U.S. will experience a devastating catastrophic event over the next few decades – something that would substantially reduce the capital stock, GDP and wealth? What does the possibility of such an event imply for the behavior of economic variables such as investment, interest rates, and equity prices? And how much should society be willing to pay to reduce the probability or likely impact of such an event? We address these questions using a general equilibrium model that describes production, capital accumulation, and household preferences, and includes as an integral part the possible arrival of catastrophic shocks. Calibrating the model to average values of economic and financial variables yields estimates of the implied expected mean arrival rate and impact distribution of catastrophic shocks. We also use the model to calculate the tax on consumption society would accept to reduce the probability or impact of a shock. Massachusetts Institute of Technology. Center for Energy and Environmental Policy Research. 2010-02-11T17:22:22Z 2010-02-11T17:22:22Z 2009-09 Working Paper 2009-012 http://hdl.handle.net/1721.1/51710 en_US MIT-CEEPR (Series);2009-012 application/pdf MIT Center for Energy and Environmental Policy Research |
| spellingShingle | Pindyck, Robert S. The Economic and Policy Consequences of Catastrophes |
| title | The Economic and Policy Consequences of Catastrophes |
| title_full | The Economic and Policy Consequences of Catastrophes |
| title_fullStr | The Economic and Policy Consequences of Catastrophes |
| title_full_unstemmed | The Economic and Policy Consequences of Catastrophes |
| title_short | The Economic and Policy Consequences of Catastrophes |
| title_sort | economic and policy consequences of catastrophes |
| url | http://hdl.handle.net/1721.1/51710 |
| work_keys_str_mv | AT pindyckroberts theeconomicandpolicyconsequencesofcatastrophes AT pindyckroberts economicandpolicyconsequencesofcatastrophes |