Catastrophic risks are defined here as events of low or unknown probability that if they occur inflict enormous losses often having a large non-monetary component. The Indian Ocean tsunami of 2004 is at the lower level of the catastrophic-risk scale of destruction; examples from higher levels including large asteroid strikes, pandemics and global warming. The challenge is to modify the principles of cost–benefit analysis to deal with serious problems caused by uncertainty (as distinct from risk), nonlinearity in value-of-life estimates, the need to project social discount rates into the distant future, and the difficulty of devising suitable policy instruments.
KeywordsCatastrophic risk Climate change, economics of Cost–benefit analysis Discount rate Carbon emission tax Global warming Inverse cost–benefit analysis Kyoto Protocol Research and development (R&D) Risk Uncertainty Value of life
- Bloom, B. 2003. Bioterrorism and the university: The threats to security – and to openness. Harvard Magazine 106(2): 48–52.Google Scholar
- Lempinen, E. 2005. Scientists on AAAS panel warn that ocean warming is having dramatic impact. AAAS News Release, 17 February. Online. Available at http://www.aaas.org/new/releases/2005/0217warmingwarning.shtml. Accessed 21 Dec 2005.
- Office of Management and Budget. 2003. 2003 Report to Congress on Combating Terrorism. Washington, DC: Executive Office of the President. Online. Available at http://www.whitehouse.gov/omb/inforeg/2003_combat_terr.pdf. Accessed 22 Dec 2005
- Parfit, D. 1984. Reasons and persons. Oxford: Oxford University Press.Google Scholar
- Posner, R. 2004. Catastrophe: Risk and response. New York: Oxford University Press.Google Scholar
- Rees, M. 2003. Our final hour: A scientist’s warning; how terror, error, and environmental disaster threaten humankind’s future in this century – on earth and beyond. New York: Basic Books.Google Scholar
- US Department of Homeland Security. 2004. Fact Sheet: Department of Homeland Security Appropriations Act of 2005. 18 October. Online. Available at http://www.dhs.gov/dhspublic/interapp/press_release/press_release_0541.xml. Accessed 22 Dec 2005.
- Viscusi, W. 1997. Economic and psychological aspects of valuing risk reduction. In Determining the value of non-marketed goods: Economic, psychological, and policy relevant aspects of contingent valuation methods, ed. R. Kopp, W. Pommerehne, and N. Schwarz. Boston: Kluwer.Google Scholar