Disaster risks, disaster strikes, and economic growth: The role of preferences

Thomas Douenne ()

PSE-Ecole d'économie de Paris (Postprint) from HAL

Abstract: This paper studies the role of preferences on the link between disasters, growth, and welfare. An endogenous growth model with endogenous disasters is presented in which one can derive closed-form solutions with recursive preferences. The model distinguishes disaster risks and disaster strikes and highlights the numerous mechanisms through which they may affect growth. It is shown that separating aversion to risk from the elasticity of inter-temporal substitution bears critical implications that enable to better understand these mechanisms. In a calibration of the model based on empirical evidence about disaster impacts in the U.S., it is shown that precautionary savings are unlikely to be sufficient to generate a positive link between disasters and growth as sometimes encountered in the empirical literature. The paper also assesses the impact of disasters on welfare and highlights the large benefits that could be obtained by enhancing insurance coverage.

Keywords: Environmental disasters; Endogenous growth; Recursive utility; Precautionary savings (search for similar items in EconPapers)
Date: 2020-10
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-02973075v1
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Citations: View citations in EconPapers (11)

Published in Review of Economic Dynamics, 2020, 38, pp.251-272. ⟨10.1016/j.red.2020.04.007⟩

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Related works:
Journal Article: Disaster Risks, Disaster Strikes, and Economic Growth: the Role of Preferences (2020)
Working Paper: Disaster risks, disaster strikes, and economic growth: The role of preferences (2020)
Working Paper: Disaster risks, disaster strikes and economic growth: the role of preferences (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:pseptp:halshs-02973075

DOI: 10.1016/j.red.2020.04.007

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