Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154274
Authors: 
Maćkowiak, Bartosz
Wiederholt, Mirko
Year of Publication: 
2015
Series/Report no.: 
ECB Working Paper 1841
Abstract: 
The world recently experienced several rare events with disastrous consequences: the global financial crisis, the European sovereign debt crisis, and the Fukushima nuclear accident. These events have in common that key decision-makers were unprepared for them, which aggravated these events. We develop a model in which agents make state-contingent plans — prepare to act in different contingencies — subject to the constraint that agents can process only a finite amount of information. We identify the forces that make agents prepare little for some contingencies. We study whether a social planner would want agents to prepare more for rare events.
Subjects: 
disasters
efficiency
rare events
rational inattention
JEL: 
D83
E58
E60
ISBN: 
978-92-899-1654-7
Document Type: 
Working Paper

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