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The Economic and Policy Consequences of Catastrophes

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  • Robert S. Pindyck
  • Neng Wang

Abstract

How likely is a catastrophic event that would substantially reduce the capital stock, GDP and wealth? How much should society be willing to pay to reduce the probability or impact of a catastrophe? We answer these questions and provide a framework for policy analysis using a general equilibrium model of production, capital accumulation, and household preferences. Calibrating the model to economic and financial data, we estimate the mean arrival rate of shocks and their size distribution, the tax on consumption society would accept to limit the maximum size of a catastrophic shock, and the cost to insure against its impact.

Suggested Citation

  • Robert S. Pindyck & Neng Wang, 2009. "The Economic and Policy Consequences of Catastrophes," NBER Working Papers 15373, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:15373
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    References listed on IDEAS

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    1. Guvenen, Fatih, 2006. "Reconciling conflicting evidence on the elasticity of intertemporal substitution: A macroeconomic perspective," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1451-1472, October.
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    More about this item

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • G01 - Financial Economics - - General - - - Financial Crises
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War

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