Three essays on the economics of natural disasters (Ontario)

This thesis consists of three essays that examine a variety of issues in the economics of natural disasters. The first essay explores the nature of insurability and the conditions that need to be satisfied for risks to be insurable. The essay examines whether the existence of an uninsurable risk is a market failure, whether transaction costs are a cause of market failure and whether government intervention in insurance markets is justified on efficiency grounds. Furthermore, the essay discusses the design and pricing of weather derivatives that can be used to hedge agricultural production risks. The second essay proposes criteria that can be used to guide loss estimation and critiques the various loss estimation techniques. An empirical input-output model of Ontario is also constructed and used to simulate the effects of hypothetical natural disasters on the province's economy. The third essay uses a forest rotation model that incorporates risk to investigate empirically the economic effects of forest fires on black spruce and jack pine stands in various site classes in Ontario. The essay also evaluates the financial viability of forest fire control programs in Ontario. The main overall findings of this study are that the existence of uninsurable risk does not constitute a market failure per se; that transaction costs are not a cause of market failure; that government policy actions to remedy the problem of uninsurable risk are not necessarily welfare increasing; that most loss estimation studies are incorrect because of double counting and their focus on the short term effects of natural disasters on special groups and not the effects on the community as a whole; and that although a reduction in fire risk results in economic gains in the form of increments in the net present values of the returns from forest stands that are subject to reduced fire risk, the financial viability of fire control programs depend on the species, the site class, the timber values, and the extent to which fire control programs reduce fire risk.