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Welfare Measurement Under Threats Of Environmental Catastrophes

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  • Tsur, Yacov
  • Zemel, Amos
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    Abstract

    Welfare measures under threats of environmental catastrophes are studied using the "“parable”" apparatus of Weitzman and Lofgren [22]. The occurrence probability of the catastrophic event is driven (at least partly) by anthropogenic activities such as natural resource exploitation. Without external effects, the green NNP is a genuine welfare measure vis-à-vis a particular parable economy. Often, however, the occurrence hazard constitutes a public bad, treated as an externality by agents who ignore their own contribution to its accumulation. In such cases the green NNP, although accounting for the event hazard rate per se, fails to properly internalize future effects on the hazard rate of current economic activities and as a result overestimates welfare. The bias term associated with the green NNP is derived and expressed in a simply and interpretable form.

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    File URL: http://purl.umn.edu/14987
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    Bibliographic Info

    Paper provided by Hebrew University of Jerusalem, Department of Agricultural Economics and Management in its series Discussion Papers with number 14987.

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    Date of creation: 2005
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    Handle: RePEc:ags:huaedp:14987

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    Postal: Faculty of Agriculture, Food and Environmental Quality Sciences Hebrew University of Jerusalem, P.O. Box 12, Rehovot 76100
    Phone: 08-9481230
    Fax: 08-9466267
    Web page: http://departments.agri.huji.ac.il/economics/indexe.html
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    Keywords: green NNP; environmental catastrophes; hazard rate; uncertainty; Environmental Economics and Policy;

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