Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/228803 
Year of Publication: 
2020
Series/Report no.: 
Working Paper No. 027.2020
Publisher: 
Fondazione Eni Enrico Mattei (FEEM), Milano
Abstract: 
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. Here we show 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. We examine 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), we find the WTP to avoid major pandemics, and show 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. Our work links the VSL and consumption disaster literatures.
Subjects: 
Catastrophes
Catastrophic Events
Macroeconomic Contractions
Disasters
Fatalities
Value of Life
Willingness to Pay
Pandemics
JEL: 
Q5
Q54
D81
Document Type: 
Working Paper

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