The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Catastrophic Risk

  • Richard A. Posner
Reference work entry


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.


Catastrophic 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 

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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Richard A. Posner
    • 1
  1. 1.