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...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | en_US |
| Published: |
Cambridge, MA; Alfred P. Sloan School of Management, Massachusetts Institute of Technology
2011
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| Subjects: | |
| Online Access: | http://hdl.handle.net/1721.1/66538 |
| _version_ | 1826204947547422720 |
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| author | Pindyck, Robert S. Wang, Neng |
| author_facet | Pindyck, Robert S. Wang, Neng |
| 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 | 2024-09-23T13:03:52Z |
| format | Working Paper |
| id | mit-1721.1/66538 |
| institution | Massachusetts Institute of Technology |
| language | en_US |
| last_indexed | 2024-09-23T13:03:52Z |
| publishDate | 2011 |
| publisher | Cambridge, MA; Alfred P. Sloan School of Management, Massachusetts Institute of Technology |
| record_format | dspace |
| spelling | mit-1721.1/665382019-04-10T10:38:12Z The Economic and Policy Consequences of Catastrophes Pindyck, Robert S. Wang, Neng catastrophes rare events economic uncertainty consumption tax national security 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. 2011-10-21T20:22:49Z 2011-10-21T20:22:49Z 2009-09 Working Paper http://hdl.handle.net/1721.1/66538 en_US MIT Sloan School of Management Working Paper;4751-09 application/pdf Cambridge, MA; Alfred P. Sloan School of Management, Massachusetts Institute of Technology |
| spellingShingle | catastrophes rare events economic uncertainty consumption tax national security Pindyck, Robert S. Wang, Neng 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 |
| topic | catastrophes rare events economic uncertainty consumption tax national security |
| url | http://hdl.handle.net/1721.1/66538 |
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