Online Seminar | Welfare Costs of Catastrophes: Lost Consumption and Lost Lives
01.12.2020
16:00 - 16:00
online
GoToMeeting
December 01, 2020 - h 4:00 PM
Prof. Robert S. Pindyck
Bank of Tokyo-Mitsubishi and MIT Sloan School of Management
introduced by
Prof. Sergio Vergalli
Fondazione Eni Enrico Mattei, University of Brescia, IAERE
To participate please register here
Most of the literature on the economics of catastrophes assumes that such events cause a reduction in the stream of consumption, as opposed to widespread fatalities. The presented research shows how to incorporate death in a model of catastrophe avoidance, and how a catastrophic loss of life can be expressed as a welfare-equivalent drop in consumption. The work examines how potential fatalities affect the policy interdependence of catastrophic events and “willingness to pay” (WTP) to avoid them. Using estimates of the “value of a statistical life” (VSL), the research finds the WTP to avoid major pandemics, and shows it is large (10% or more of annual consumption) and partly driven by the risk of macroeconomic contractions. Likewise, the risk of pandemics significantly increases the WTP to reduce consumption risk. The work links the VSL and consumption disaster literatures.