%0 Report %1 Barro:NBER:2006 %A Barro, Robert J. %B Working Paper Series %D 2006 %K disaster equity-premium welfare %N 12763 %R 10.3386/w12763 %T On the Welfare Costs of Consumption Uncertainty %U http://www.nber.org/papers/w12763 %X Satisfactory calculations of the welfare cost of aggregate consumption uncertainty require a framework that replicates major features of asset prices and returns, such as the high equity premium and low risk-free rate. A Lucas-tree model with rare but large disasters is such a framework. In a baseline simulation, the welfare cost of disaster risk is large -- society would be willing to lower real GDP by about 20% each year to eliminate all disaster risk, including wars. In contrast, the welfare cost from usual economic fluctuations is much smaller, though still important -- corresponding to lowering GDP by around 1.5% each year.

@techreport{Barro:NBER:2006, abstract = {Satisfactory calculations of the welfare cost of aggregate consumption uncertainty require a framework that replicates major features of asset prices and returns, such as the high equity premium and low risk-free rate. A Lucas-tree model with rare but large disasters is such a framework. In a baseline simulation, the welfare cost of disaster risk is large -- society would be willing to lower real GDP by about 20% each year to eliminate all disaster risk, including wars. In contrast, the welfare cost from usual economic fluctuations is much smaller, though still important -- corresponding to lowering GDP by around 1.5% each year.}, added-at = {2014-10-22T23:19:44.000+0200}, author = {Barro, Robert J.}, biburl = {https://www.bibsonomy.org/bibtex/2a00063acba6c54309ed4edabf70e71d1/fcqms}, description = {On the Welfare Costs of Consumption Uncertainty}, doi = {10.3386/w12763}, institution = {National Bureau of Economic Research}, interhash = {ff9acaee7713b9dc8043e641f5cf9128}, intrahash = {a00063acba6c54309ed4edabf70e71d1}, keywords = {disaster equity-premium welfare}, month = {December}, number = 12763, series = {Working Paper Series}, timestamp = {2014-10-22T23:19:44.000+0200}, title = {On the Welfare Costs of Consumption Uncertainty}, type = {Working Paper}, url = {http://www.nber.org/papers/w12763}, year = 2006 }