Averting Catastrophes: The Strange Economics of Scylla and Charybdis
Ian W. R. Martin, Robert S. Pindyck
American Economic Review · 2015 · Volume 105 · Issue 10
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)
Keywords
Allocative Efficiency, Cost-Benefit Analysis, Valuation of Environmental Effects, Climate, Natural Disasters and Their Management, Global Warming
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