Do Natural Disasters Make Sustainable Growth Impossible?

Lee Endress, James Roumasset and Christopher Wada

No 2016-12, Working Papers from University of Hawaii Economic Research Organization, University of Hawaii at Manoa

Abstract: We consider the prospects for sustainable growth using expected utility models of optimal investment under threat from a natural disaster. Extension of a discrete, two-period model, to continuous time over an infinite time horizon permits the analysis of sustainability under uncertainty regarding adverse events, including both one-time and recurrent disasters. Natural disasters, with destruction of productive capital, disrupt the optimal consumption and utility paths, but the Arrow et al. (2004) sustainability criterion is still satisfied even without adding strong or weak sustainability constraints. We also consider a separate natural resource sector and show that, except for extreme cases, the optimal steady state level of the renewable resource is not affected by the possibility of natural disasters. In the case of catastrophic events, however, damage to the resource system may be severe enough to push the system below a critical value tipping point, undermining the prospects of long-run sustainability.

Keywords: sustainable growth; natural disaster; expected utility; golden rule; Hotelling; Ramsey (search for similar items in EconPapers)
JEL-codes: O4 Q2 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2016-11
New Economics Papers: this item is included in nep-ene, nep-env and nep-upt
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Related works:
Journal Article: Do Natural Disasters Make Sustainable Growth Impossible? (2020)
Working Paper: Do natural disasters make sustainable growth impossible? (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:hae:wpaper:2016-12

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