Natural Disasters in a Stochastic World"
Lester B. Lave and Jay Apt
We examine the risks of natural disasters, such as hurricanes, floods,
and earthquakes to find the optimal public reaction, including structures
to control the disaster (such as dams and levees) and evacuation.
Protection of life should be handled by warning and evacuation leaving
property protection to be optimized via benefit-cost analysis. Mandatory
insurance can both inform people of the risks and stop them from claiming
public funds to compensate them from natural disaster losses. A high level
of protective structures is warranted in areas at high risk of natural
disasters, but the cost of these structures should be borne locally.
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