Working Paper: NBER ID: w23346
Authors: Ian Martin; Robert S. Pindyck
Abstract: We face a variety of potential catastrophes; nuclear or bioterrorism, a climate catastrophe, and a "mega-virus" are examples. Martin and Pindyck (AER 2015) showed that decisions to avert such catastrophes are interdependent, so that simple cost-benefit analysis breaks down. They assumed that catastrophic events cause "destruction," i.e., a reduction in the stream of consumption. But some catastrophes cause death instead of, or in addition to, destruction. Here we incorporate death in a model of catastrophe avoidance, and show how it affects the interdependence of catastrophic events and the "willingness to pay" to avoid those events.
Keywords: No keywords provided
JEL Codes: D81; H12; H56; Q50; Q54
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| WTP to avert a catastrophe that causes death (J17) | WTP to avert a catastrophe that causes destruction (H84) |
| WTP to avert a catastrophe that causes destruction (H84) | WTP to avert a catastrophe that causes death (J17) |
| probability of survival (C41) | WTP to avert catastrophes (H84) |
| expected utility loss from death (J17) | WTP to avert catastrophes (H84) |
| Value of Statistical Life (VSL) (J17) | WTP to avert death-causing catastrophes (J17) |
| WTP for catastrophes is interdependent (H84) | WTP for both types of catastrophes (H84) |