Preventing Controversial Catastrophes

Steven D Baker, Burton Hollifield and Emilio Osambela

The Review of Asset Pricing Studies, 2020, vol. 10, issue 1, 1-60

Abstract: We model, in a market-based democracy, different constituencies that disagree regarding the likelihood of economic disasters. Costly public policy initiatives to reduce or eliminate disasters are assessed relative to private alternatives presented by financial markets. Demand for such public policies falls as much as 40% with disagreement, and crowding out by private insurance drives most of the reduction. As support for disaster-reducing policy jumps in periods of disasters, costly policies may be adopted only after disasters occur. In some scenarios constituencies may even demand policies oriented at increasing disaster risk if these policies introduce speculative opportunities.Received September 25, 2017; Editorial decision September 3, 2018 by Editor: Thierry Foucault

JEL-codes: D78 E44 E61 G01 G18 H21 H23 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1093/rapstu/raz001 (application/pdf)
Access to full text is restricted to subscribers.

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: https://EconPapers.repec.org/RePEc:oup:rasset:v:10:y:2020:i:1:p:1-60.

Access Statistics for this article

The Review of Asset Pricing Studies is currently edited by Zhiguo He

More articles in The Review of Asset Pricing Studies from Society for Financial Studies
Bibliographic data for series maintained by Oxford University Press ().