Natural and Man-made Catastrophes – Theories, Economics, and Policy Designs Natural and Man-made Catastrophes – Theories, Economics, and Policy Designs S Niggol Seo Muaebak Institute of Global Warming Studies Seoul South Korea This edition first published 2019 © 2019 John Wiley & Sons All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by law Advice on how to obtain permission to reuse material from this title is available at http://www.wiley.com/go/permissions The right of S Niggol Seo to be identified as the author of this work has been asserted in accordance with law Registered Offices John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, USA John Wiley & Sons Ltd., The Atrium, Southern Gate, Chichester, West Sussex, PO19 8SQ, UK Editorial Office 9600 Garsington Road, Oxford, OX4 2DQ, UK For details of our 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WarnockPro by SPi Global, Chennai, India 10 v Contents List of Figures ix List of Tables xi About the Author xiii Preface and Acknowledgments xv The Economics of Humanity-Ending Catastrophes, Natural and Man-made: Introduction 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 Fables of Catastrophes in Three Worlds Feared Catastrophic Events Global or Universal Catastrophes A Multidisciplinary Review of Catastrophe Studies 11 Economics of Catastrophic Events 16 Empirical Studies of Behaviors Under Catastrophes 18 Designing Policies on Catastrophic Events 21 Economics of Catastrophes Versus Economics of Sustainability 25 Road Ahead 26 References 26 Mathematical Foundations of Catastrophe and Chaos Theories and Their Applications 37 2.1 2.2 2.2.1 2.2.2 2.3 2.3.1 2.3.2 2.4 2.4.1 2.4.2 2.4.3 2.5 2.6 Introduction 37 Catastrophe Theory 39 Catastrophe Models and Tipping Points 40 Regulating Mechanisms 42 Chaos Theory 43 Butterfly Effect 44 The Lorenz Attractor 45 Fractal Theory 46 Fractals 46 The Mandelbrot Set 49 Fractals, Catastrophe, and Power Law 50 Finding Order in Chaos 55 Catastrophe Theory Applications 60 vi Contents 2.7 Conclusion 61 References 62 Philosophies, Ancient and Contemporary, of Catastrophes, Doomsdays, and Civilizational Collapses 67 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 Introduction 67 Environmental Catastrophes: Silent Spring 69 Ecological Catastrophes: The Ultimate Value Is Wilderness 73 Climate Doomsday Modelers 76 Collapsiology: The Archaeology of Civilizational Collapses 79 Pascal’s Wager: A Statistics of Infinity of Value 82 Randomness in the Indian School of Thoughts 85 The Road to the Economics of Catastrophes 88 References 89 Economics of Catastrophic Events: Theory 95 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 Introduction 95 Defining Catastrophic Events: Thresholds 98 Defining Catastrophic Events: Tail Distributions 100 Insurance and Catastrophic Coverage 104 Options for a Catastrophic Event 110 Catastrophe Bonds 114 Pareto Optimality in Policy Interventions 119 Events of Variance Infinity or Undefined Moments 125 Economics of Infinity: A Dismal Science 129 Alternative Formulations of a Fat-tail Catastrophe 132 Conclusion 135 References 137 Economics of Catastrophic Events: Empirical Data and Analyses of Behavioral Responses 145 5.1 5.2 5.3 5.4 Introduction 145 Modeling the Genesis of a Hurricane 147 Indices of the Destructive Potential of a Hurricane 149 Factors of Destruction: Wind Speeds, Central Pressure, and Storm Surge 151 Predicting Future Hurricanes 153 Measuring the Size and Destructiveness of an Earthquake 156 What Causes Human Fatalities? 159 Evidence of Adaptation to Tropical Cyclones 162 Modeling Behavioral Adaptation Strategies 166 Contributions of Empirical Studies to Catastrophe Literature 171 References 172 5.5 5.6 5.7 5.8 5.9 5.10 Catastrophe Policies: An Evaluation of Historical Developments and Outstanding Issues 177 6.1 Introduction 177 Contents 6.2 6.3 6.4 6.5 6.6 6.7 6.8 6.9 6.10 6.11 6.12 Protecting the Earth from Asteroids 178 Earthquake Policies and Programs 181 Hurricane, Cyclone, and Typhoon Policies and Programs 182 Nuclear, Biological, and Chemical Weapons 187 Criteria Pollutants: The Clean Air Act 191 Toxic Chemicals and Hazardous Substances: Toxic Substances Control Act 198 Ozone Depletion: The Montreal Protocol 201 Global Warming: The Kyoto Protocol and Paris Agreement 203 Strangelets: High-Risk Physics Experiments 207 Artificial Intelligence 209 Conclusion 210 References 210 Insights for Practitioners: Making Rational Decisions on a Global or Even Universal Catastrophe 219 7.1 7.2 7.3 7.4 7.5 7.6 Introduction 219 Lessons from the Multidisciplinary Literature of Catastrophes 221 Fears of Low-Minds and High-Minds: Opinion Surveys 228 Planet-wide Catastrophes or Universal Catastrophes 230 Making Rational Decisions on Planet-wide or Universal Catastrophes 234 Conclusion 241 References 241 Index 249 vii ix List of Figures Figure 2.1 Deadliest earthquakes during the past 2000 years Annual number of cyclone fatalities in the North Atlantic Ocean since 1900 19 Geometry of a fold catastrophe 40 Figure 2.2 Figure 2.3 Figure 2.4 The Lorenz attractor 46 The first four iterations of the Koch snowflake 48 The Mandelbrot set 50 Figure 2.5 Figure 2.6 Exponential growth under a power law utility function 54 Population bifurcation 56 Figure 4.1 Figure 4.2 Number of victims from natural catastrophes since 1970 96 Pareto–Levy–Mandelbrot distribution 103 Figure 4.3 Figure 4.4 Figure 4.5 Annual insured catastrophe losses, globally 106 The government cost of federal crop insurance 110 Spreads for CAT bonds versus high-yield corporate bonds 117 Figure 4.6 Figure 4.7 Outstanding CAT bonds by peril (as of December 2016) 118 A trajectory of carbon tax with uncertainty 124 Figure 4.8 Figure 5.1 A family of Cauchy distributions with different scale parameters 127 Hurricane frequency in the North Atlantic: 1880–2013 149 Figure 5.2 Changes in power dissipation index (PDI) and sea surface temperature (SST) from 1949 to 2009 in the North Atlantic Ocean 151 The fatality–intensity relationship of tropical cyclones in South Asia 160 The surge–fatality relationship of tropical cyclones in the North Indian Ocean 164 History of the sulfur dioxide allowance price of clearing bids from spot auction 198 Figure 1.1 Figure 1.2 Figure 5.3 Figure 5.4 Figure 6.1 Figure 7.1 Catastrophes by the spatial scale of events 231 xi List of Tables Table 1.1 Table 2.1 Deadliest cyclones, globally 21 Pareto distribution of American wealth 51 Table 2.2 Table 2.3 Calculating the Feigenbaum constant for a nonlinear map 58 Calculating the Feigenbaum constant for a logistic map 59 Table 2.4 Table 3.1 Calculating the Feigenbaum constant for the Mandelbrot set 60 A summary of topics covered 69 Table 4.1 Table 4.2 Table 5.1 Insured losses from catastrophes by world region in 2016 107 Growth of the US Federal Crop Insurance Program 108 Projections of tropical cyclones in the southern hemisphere by 2200 154 Projections of tropical cyclones in South Asia by 2100 155 Table 5.2 Table 5.3 Table 5.4 Table 5.5 Table 5.6 Table 5.7 Earthquake statistics, worldwide 159 Estimates of intensity, income, and surge effects 163 An NB model for the cyclone shelter program effectiveness (number of cyclone fatalities) 166 Probit choice model of adopting a tropical cyclone adaptation strategy in southern hemisphere ocean basins 168 Probit adoption model of adaptation strategies to cyclone-induced surges and cyclone intensity in South Asia 170 Table 6.1 Table 6.2 Historical budgets for US NEO observations and planetary defense 180 Tropical cyclone RSMCs and TCWCs for ocean regions and basins 184 Table 6.3 Table 6.4 NFIP statistics on payments, borrowing, and cumulative debts Treaties on nuclear, biological, and chemical weapons 190 Table 6.5 Table 7.1 NAAQS for criteria pollutants, as of 2017 193 Top fears of average Americans 229 Table 7.2 Table 7.3 Table 7.4 Nobel laureates’ ranking of the biggest challenges (2017) 230 Global-scale or universal-scale catastrophes 233 Elements of a rational decision on global-scale catastrophes 237 186 xiii About the Author Professor S Niggol Seo is a natural resource economist who specializes in the study of global warming Born in a rural village in South Korea in 1972, he received a PhD degree in Environmental and Natural Resource Economics from Yale University in May 2006 with a dissertation on microbehavioral models of global warming Since 2003, he has worked on various World Bank projects on climate change in Africa, Latin America, and Asia He has held Professor positions in the UK, Spain, and Australia from 2006 to 2015 Professor Seo has published five books and over fifty international journal articles on global warming economics He has been on the editorial boards of three international journals: Climatic Change (Stanford University), Food Policy (University of Bologna), and Applied Economic Perspectives and Policy (Oxford University Press) Among the academic honors he has received is an Outstanding Applied Economic Perspectives and Policy Article Award from the Agricultural and Applied Economics Association in Pittsburgh in June 2011 xv Preface and Acknowledgments This book entitled Natural and Man-made Catastrophes – Theories, Economics, and Policy Designs lays the foundation for the economic analyses of and policymaking on truly big catastrophes that may end humanity or even the universe but, at the same time, may occur randomly to utterly shock the world Such global-scale or universal catastrophes analyzed in the book include blackholegenerating strangelets, artificial intelligence that surpasses the human brain capacity, asteroids that may collide with Earth, killer robots, nuclear wars, global warming that could end all civilizations on the planet, ozone layer depletion, toxic chemicals, criteria pollutants, extreme tropical cyclones, and deadly earthquakes To build the economics of humanity-ending catastrophes, the author takes a multidisciplinary approach The book provides a critical review of the scientific theories of catastrophe, chaos, and fractals in Chapter 2; of the philosophical, environmental, and archaeological traditions of societal collapses and doomsdays in Chapter 3; of economic models and markets of catastrophic events in Chapter 4; of empirical global catastrophe data and empirical modeling experiences in Chapter 5; of past policy interventions and future policy areas on catastrophes in Chapter 6; and of surveys of opinions from varied social groups on fears and challenges, as well as practical insights in Chapter The book showcases many instances where a concept or theory developed in one discipline is appropriated by other disciplines in a revised form Of the aforementioned range of catastrophic events, the most catastrophic events during the past century to humanity have been tropical cyclones and earthquakes as far as the number of human fatalities is concerned A single event of these catastrophes has killed as many as about half a million people Besides these two catastrophes, humanity has gained substantial experience of other catastrophes caused by toxic chemicals, ozone layer depletion, air pollutants, and global warming In building the economics foundation of humanity-scale catastrophes, this book takes full advantage of the evolving literature on the empirical economic analyses of these recurring disaster events The first chapter starts with “The Economics of Humanity-Ending Catastrophes,” although the book is multidisciplinary in character Here, the economics broadly suggests that a decision-making agent in market places, whether an individual, a community, a nation, or an international entity, makes its decisions on catastrophic events optimally, that is, by maximizing the net benefit from alternative solutions At the heart of the economics, hence, lie the behavioral alterations of an economic agent faced with catastrophe situations, which are called by multiple names in the book, ... of Humanity-Ending Catastrophes, Natural and Man- made: Introduction 1.1 Fables of Catastrophes in Three Worlds Since the beginning of human civilizations, humanity has feared catastrophes and. .. astronomers have discovered the possibility of asteroids and comets Natural and Man- made Catastrophes – Theories, Economics, and Policy Designs, First Edition S Niggol Seo © 2019 John Wiley &... sleep On hearing his anxiety, a person who pitied his situation Natural and Man- made Catastrophes – Theories, Economics, and Policy Designs, First Edition S Niggol Seo © 2019 John Wiley & Sons Ltd