Working Paper: CEPR ID: DP10730
Authors: Ian W. R. Martin; Robert Pindyck
Abstract: Faced with numerous potential catastrophes---nuclear and bioterrorism, mega-viruses, climate change, and others---which should society attempt to avert? A policy to avert one catastrophe considered in isolation might be evaluated in cost-benefit terms. But because society faces multiple catastrophes, simple cost-benefit analysis fails: Even if the benefit of averting each one exceeds the cost, we should not necessarily avert them all. We explore the policy interdependence of catastrophic events, and develop a rule for determining which catastrophes should be averted and which should not.
Keywords: bioterrorism; catastrophes; catastrophic events; climate change; disasters; epidemics; nuclear terrorism; pandemics; policy objectives; willingness to pay
JEL Codes: D81; Q5; Q54
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| background risk (D80) | WTP to avert a catastrophe (H84) |
| WTP to avert a catastrophe (H84) | expected future consumption (D15) |
| expected future consumption (D15) | expected future marginal utility (D11) |
| WTP to avert all catastrophes (H84) | sum of individual WTPs (D69) |
| presence of multiple catastrophes (H84) | optimal to avert subset (D00) |