Economics at your fingertips  

Optimal disaster-preventive expenditure in a dynamic and stochastic model

Takumi Motoyama

Journal of Macroeconomics, 2017, vol. 51, issue C, 28-47

Abstract: The purpose of this study is to present an analytical framework for publicly optimal disaster-preventive expenditure. We examine the optimal policy combination of tax rate, disaster-preventive expenditure, and productive government expenditure in a neoclassical growth model, in which natural disasters occur stochastically and partially destroy existing capital. Based on this model, we can decompose the welfare effect of raising preventive expenditure into three effects: the damage reduction, crowding out, and precautionary effects. By identifying these marginal benefits and costs, we obtain the policy conditions that maximize household welfare. Furthermore, we show that optimal prevention is increasing in disaster probability, and by using a numerical example, we show that there is an inverse U-shaped relationship between the expected growth rate and disaster probability.

Keywords: Natural disasters; Disaster-preventive expenditure; Optimal policy (search for similar items in EconPapers)
JEL-codes: E2 H4 O4 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

DOI: 10.1016/j.jmacro.2016.11.005

Access Statistics for this article

Journal of Macroeconomics is currently edited by Douglas McMillin and Theodore Palivos

More articles in Journal of Macroeconomics from Elsevier
Bibliographic data for series maintained by Haili He ().

Page updated 2020-09-22
Handle: RePEc:eee:jmacro:v:51:y:2017:i:c:p:28-47