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Averting Catastrophes: The Strange Economics of Scylla and Charybdis

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  • Ian W. R. Martin
  • Robert S. 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. (JEL D61, Q51, Q54)

Suggested Citation

  • Ian W. R. Martin & Robert S. Pindyck, 2015. "Averting Catastrophes: The Strange Economics of Scylla and Charybdis," American Economic Review, American Economic Association, vol. 105(10), pages 2947-2985, October.
  • Handle: RePEc:aea:aecrev:v:105:y:2015:i:10:p:2947-85
    Note: DOI: 10.1257/aer.20140806
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    as
    1. Ian W. R. Martin & Robert S. Pindyck, 2015. "Averting Catastrophes: The Strange Economics of Scylla and Charybdis," American Economic Review, American Economic Association, vol. 105(10), pages 2947-2985, October.
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    More about this item

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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