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Choosing between adaptation and prevention with an increasing probability of a pandemic

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  • Berry, Kevin
  • Finnoff, David

Abstract

The risk of pandemics is increasing, driven by changes in human behavior and climate, both of which are difficult for policymakers to control. There are two main strategies available for reacting to these changes. This paper considers the decision to invest in either adaptation (domestic) capital or prevention (foreign) capital before a pandemic in an interval of time when pandemic risk is increasing. This paper demonstrates how relatively small investments in the two strategies can provide large savings through smaller expected future damages. The technical relationships between adaptation, prevention and risk also determine the optimal mixture of investment over time. As risk increases, the technical relationships between these three stocks causes the optimal mixture of strategies to change over time.

Suggested Citation

  • Berry, Kevin & Finnoff, David, 2016. "Choosing between adaptation and prevention with an increasing probability of a pandemic," Journal of Economic Behavior & Organization, Elsevier, vol. 132(PB), pages 177-192.
  • Handle: RePEc:eee:jeborg:v:132:y:2016:i:pb:p:177-192
    DOI: 10.1016/j.jebo.2016.06.007
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    References listed on IDEAS

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    1. Shogren, Jason F. & Crocker, Thomas D., 1999. "Risk and Its Consequences," Journal of Environmental Economics and Management, Elsevier, vol. 37(1), pages 44-51, January.
    2. Skiba, A K, 1978. "Optimal Growth with a Convex-Concave Production Function," Econometrica, Econometric Society, vol. 46(3), pages 527-539, May.
    3. Berry, Kevin & Finnoff, David & Horan, Richard D. & Shogren, Jason F., 2015. "Managing the endogenous risk of disease outbreaks with non-constant background risk," Journal of Economic Dynamics and Control, Elsevier, vol. 51(C), pages 166-179.
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    5. Zemel, Amos, 2015. "Adaptation, mitigation and risk: An analytic approach," Journal of Economic Dynamics and Control, Elsevier, vol. 51(C), pages 133-147.
    6. Sally Kane & Jason Shogren, 2000. "Linking Adaptation and Mitigation in Climate Change Policy," Climatic Change, Springer, vol. 45(1), pages 75-102, April.
    7. Shogren, Jason F. & Toman, Michael, 2000. "Climate Change Policy," Discussion Papers 10767, Resources for the Future.
    8. Ehrlich, Isaac & Becker, Gary S, 1972. "Market Insurance, Self-Insurance, and Self-Protection," Journal of Political Economy, University of Chicago Press, vol. 80(4), pages 623-648, July-Aug..
    9. Finnoff, David & Shogren, Jason F. & Leung, Brian & Lodge, David, 2007. "Take a risk: Preferring prevention over control of biological invaders," Ecological Economics, Elsevier, vol. 62(2), pages 216-222, April.
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    More about this item

    Keywords

    Endogenous risk; Prevention schedule; Optimal control; Infectious disease;

    JEL classification:

    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • Q29 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Other
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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