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Optimal disaster-preventive expenditure in a dynamic and stochastic model

Author

Listed:
  • Takumi Motoyama

    (Graduate School of Economics, Osaka University)

Abstract

The purpose of this study is to present an analytical framework for publicly optimal disaster- preventive expenditure. We examine an optimal policy combination of tax rate, disaster-preventive expenditure, and government productive expenditure in the neoclassical growth model, in which nat- ural disasters occur stochastically and partially destroy existing capital. Based on this model, we can decompose the welfare effect of raising preventive expenditure into three effects: damage-reduction, crowding-out, and precautionary savings effect. By identifying these marginal benefits and costs, we obtain policy conditions that maximize household welfare. Furthermore, the expected growth rate under optimal policy is considered, and an inverse -U-shaped relationship between the growth rate and disaster probability is shown.

Suggested Citation

  • Takumi Motoyama, 2015. "Optimal disaster-preventive expenditure in a dynamic and stochastic model," Discussion Papers in Economics and Business 15-03, Osaka University, Graduate School of Economics.
    • Handle: RePEc:osk:wpaper:1503
    as

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    More about this item

    Keywords

    Natural disasters; Disaster-preventive expenditure; Optimal policy;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • H4 - Public Economics - - Publicly Provided Goods
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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