Year: 2024
Type: preprint
Abstract: Standard economic analysis stumbles on mega-disasters’ specific features. We impute these shortcomings to an invariable recourse to the expected value metric and its decoupling from discounting. We develop a two-pronged quantitative approach to address this issue: first we introduce a family of discount models (Lomax based) bridging the gap between the exponential and the hyperbolic discount models. We then define a functional, the Δ-transform, that bonds the discount model with the disaster impact underlying random variable. Key properties of the Δ-transform are displayed along with closed formula of special functions in the case of typical power law distributions suitable for modelling disasters and mega-disasters. Practical implementation challenges related to uncertainty management are discussed, along with the extent to which our approach challenges conventional wisdom on mainstream disaster economics and other situations featuring long-term horizons and high uncertainty. Classification code ( JEL): C20, C65, D61, H43 Q54
Source: Research Square
Author: Guillaume Dulac
Language: English
Subfield: General Decision Sciences
Field: Decision Sciences
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W4391004393