The Review of Asset Pricing Studies Vol. 10 No. 1 2020
Preventing Controversial Catastrophes
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
- DOI
- 10.1093/rapstu/raz001
- Volume
- 10
- Issue
- 1
- Pages
- 1-60
- Language
- en
- Sources
- bibtex:phds-export.bib crossref openalex