Averting Catastrophes: The Strange Economics of Scylla and Charybdis


Martin, Ian WR, and Robert S Pindyck. “Averting Catastrophes: The Strange Economics of Scylla and Charybdis.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2014.
dp54_pindyck-martin.pdf4.85 MB


How should we evaluate public policies or projects to avert, or reduce the likeli- hood of, a catastrophic event? Examples might include inspection and surveillance programs to avert nuclear terrorism, investments in vaccine technologies to help respond to a {\textbackslash}mega- virus," or the construction of levees to avert major ooding. A policy to avert a particular catastrophe considered in isolation might be evaluated in a cost-benet framework. But be- cause society faces multiple potential catastrophes, simple cost-benet analysis breaks down: Even if the benet of averting each one exceeds the cost, we should not necessarily avert all of them. We explore the policy interdependence of catastrophic events, and show that con- sidering these events in isolation can lead to policies that are far from optimal. We develop a rule for determining which events should be averted and which should not.

Last updated on 03/26/2015