On the welfare costs of consumption uncertainty
By: Robert J. Barro.
Contributors: National Bureau of Economic Research.
Series: NBER working paper series -- no. 12763.; Working paper series (National Bureau of Economic Research) -- working paper no. 12763.
Publisher: National Bureau of Economic Research
Published: 2006
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 30
Subjects: Consumption (Economics) -- Mathematical models; Risk -- Economic aspects
Description: "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"--National Bureau of Economic Research web site.
Notes: "December 2006"

Includes bibliographical references (p. 27-28).

Also available in PDF from the NBER world wide web site (www.nber.org).