Catastrophic responses to catastrophic risks

Abstract

Socializing risks from catastrophic losses is difficult even in an ideal political environment, owing to different estimates of low probability risks, solvency constraints, dangers of moral hazard, and high loss correlation. However, these intrinsic contracting problems do not justify invalidating ordinary insurance contracts or forcing insurers to cover catastrophic losses. Yet, political pressures forcing insurance subsidies now induce inefficient decisions in siting and construction, with high expected social losses. Ordinary contract solutions are always imperfect, but superior to the regulatory maze. Unfortunately, patterns of legislation and court decisions are running in the wrong direction.

This is a preview of subscription content, access via your institution.

References

  1. Abraham, Kenneth (1987). “Individual Action and Collective Responsibility: The Dilemma of Mass Tort Reform”,Virginia Law Review 73, 845–907.

    Google Scholar 

  2. Arrow, Kenneth, J. (1996). “The Theory of Risk-Bearing: Small and Great Risks,”Journal of Risk and Uncertainty 12.

  3. Bentson George, “The Economiks of Gender Discrimination in Employee Fringe Benefits:”Manhart Revisited 49, 489–542.

  4. Epstein, Richard A. (1982). “The Historical Origins and Economic Structure of Workers' Compensation Law,”Georgia Law Review 16, 775–819.

    Google Scholar 

  5. Epstein, Richard A. (1984). “The Legal and Insurance Dynamics of Mass Torts,”Journal of Legal Studies 13, 475–506, 495–505.

    Google Scholar 

  6. Epstein, Richard A. (1991). “A Clash of Two Cultures: Will the Tort System Survive Automobile Insurance Reform?”Valparaiso Law Review 25, 173–201.

    Google Scholar 

  7. Epstein, Richard A. (1992). “A Common Lawyer Looks at Constitutional Interpretation,”Boston University Law Review 72, 699–727.

    Google Scholar 

  8. Fischer, Michael (1996). “Union Carbide's Bhopal Incident: A Retrospective,”Journal of Risk and Uncertainty 12.

  9. Hall, Mark A. (1994).Is Community Rating Essential to Managed Competition (American Enterprise Institute Special Studies special studies on health reform).

  10. Holmes, Oliver Wendell. (1899). “The Theory of Legal Interpretation,”Harvard Law Review 12, 417–420, 417.

    Google Scholar 

  11. Jobe, Edward B. (1996). “Managing Hurricane Exposure.” Paper prepared for the Stanford University Conference on Social Treatment of Catastrophic Risk (1994).

  12. Kunreuther, Howard. (1996). “Mitigating Disaster Losses Through Insurance,”Journal of Risk and Uncertainty 12(2).

  13. Kunreuther, Howard, Neil Doherty, and Anne Kleffner. (1992). “Should Society Deal with the Earthquake Problem,”Regulation (Spring), 60–68.

  14. Priest, George (1996). “The Government, The Market and the Problem of Catastrophic Loss,”Journal of Risk and Uncertainty 12.

  15. Shah, Haresh. (1996). “Natural Hazard Research: From the Ivory Two to Main Street,”Journal of Risk and Uncertainty 12(2).

  16. Schwartz, Gary. (1993). “Waste, Fraud, and Abuse in Workers' Compensation: The Recent California Experience,”Maryland Law Review 52, 983–1015.

    Google Scholar 

  17. Sinfield, Nick. (1996). Asbestos-Human or Natural Disaster?

  18. Viscusi, W. Kip (1996). “Alternative Institutional Response to Asbestor,”Journal of Risk and Uncertainty 12.

  19. Zeckhauser, Richard (1996). “The Economics of Catastrophes,”Journal of Risk and Uncertainty 12.

Download references

Authors

Additional information

The University of Chicago

Rights and permissions

Reprints and Permissions

About this article

Cite this article

Epstein, R.A. Catastrophic responses to catastrophic risks. J Risk Uncertainty 12, 287–308 (1996). https://doi.org/10.1007/BF00055799

Download citation

Key words

  • Catastrophic risk
  • contra proferentem
  • coverage formulas (exposure, manifestation, triple-trigger)
  • pollution exemption
  • socialized losses