The economics of global environmental risk

This chapter focusses on global environmental risks such as climate change, an issue that must be confronted as we move into the future. It proposes sound principles of risk management that make sense in today's society generally, going beyond their role of averting and hedging climate risks. This chapter is about these and related questions. In attempting to answer them, it deals with different aspects of the theory of risk-bearing. I explain current responses to global change, focusing on the new challenges: human-induced or endogenous risks, including potentially catastrophic risks, which are not adequately treated by traditional economic analysis. In summary, we are dealing with risks that have two major new characteristics: they are endogenous and potentially catastrophic. In addition, climate risks have three more conventional features: they are poorly understood, correlated and irreversible. In all cases, this chapter proposes ways to advance our understanding of the problems. This chapter proposes ways to evaluate decisions under endogenous and potentially catastrophic risks, and incorporates often neglected features of correlated, poorly understood and irreversible risks. The analysis proposed here opens new ways of thinking and at the same time poses new challenges. At the end I indicate new areas of research.risk; global environment; climate change; endogenous risk; catastrophic risk; risk management; mathematical modeling; endogenous uncertainty; policy

Global catastrophic risk from lower magnitude volcanic eruptions.

Globalisation supports the clustering of critical infrastructure systems, sometimes in proximity to lower-magnitude (VEI 3–6) volcanic centres. In this emerging risk landscape, moderate volcanic eruptions might have cascading, catastrophic effects. Risk assessments ought to be considered in this light.Templeton World Foundatio

Global Catastrophic Nuclear Risk: A Guide for Philanthropists

Nuclear weapons are a global catastrophic risk; a nuclear war could kill untold millions, inflict horrific suffering on survivors, and derail human civilization as we know it. This report forms a guide for philanthropists who seek to mitigate this risk and maximize the counterfactual impact of their charitable donations. Specifically, the report seeks to guide funders entering this field in the wake of several challenges: the apparent collapse of post-Cold War arms control, the second year of the Russo-Ukrainian War, rising U.S.-China tensions, and a large funding shortfall for nuclear security. It mirrors many of the themes of Founders Pledge's Guide to the Changing Landscape of High-Impact Climate Philanthropy, and is indebted to the insights in that document. The report's analysis has four steps:Understanding key features of the landscape of nuclear philanthropy, with special attention to recent funding shortfalls. Analyzing the structure of the problem, emphasizing the super-linearity of expected costs; not all nuclear wars are equal, and bigger nuclear wars could be disproportionately more damaging than smaller nuclear wars for both current generations and the long-term future. Sketching guiding principles for nuclear philanthropy based on these ideas:Prioritize minimizing expected global war damage;Prioritize neglected strategies;Multiply impact by shaping great power behavior;Exercise leverage via policy advocacy;Pursue a strategy of "robust diversification."       4. Exploring practical implications of these principles. The section briefly describes               concrete projects that philanthropists can support. A conclusion enumerates key               uncertainties and sketches a path forward for philanthropists

Irreversible and Catastrophic

As many treaties and statutes emphasize, some risks are distinctive in the sense that they are potentially irreversible or catastrophic; for such risks, it is sensible to take extra precautions. When a harm is irreversible, and when regulators lack information about its magnitude and likelihood, they should purchase an "option" to prevent the harm at a later date; the Irreversible Harm Precautionary Principle. This principle brings standard option theory to bear on environmental law and risk regulation. And when catastrophic outcomes are possible, it makes sense to take special precautions against the worst-case scenarios; the Catastrophic Harm Precautionary Principle. This principle is based on two foundations: an appreciation of people's failure to appreciate the expected value of truly catastrophic losses; and an understanding of the distinction between risk and uncertainty. The Irreversible Harm Precautionary Principle must, however, be applied with a recognition that irreversible harms are sometimes on all sides of social problems, and that such harms may be caused by regulation itself. The Catastrophic Harm Precautionary Principle must be applied with an understanding that in some cases, eliminating the worst-case scenario causes far more serious problems than it solves. The normative arguments are illustrated throughout with reference to the problem of global warming; other applications include injunctions in environmental cases, genetic modification of food, protection of endangered species, and terrorism.

The Future of Global Reinsurance

To provide a map to the future, we need a realistic appraisal of how we got where we are. This is the story of how humans have hedged risks. There are two basic and distinct approaches: statistical and economical. The former is typical of the insurance industry; the latter typifies the securities industry. Both are needed to manage today's catastrophic risks. Neither alone will do. I will show below how a combination of both leads to efficient outcomes, and is the way to be the future. Hedging unknown catastrophic risks requires a blend of skills from the securities and the insurance industries. By tapping large and liquid capital markets, reinsurers will be better able to deal with correlated, catastrophic risks. At the end of the intelligent customized use of derivatives and technology will separate the winners from the losers.hedging; hedge risk; reinsurance; catastrophe; catastrophic risks; securitization; environmental risks; global finance; catastrophe bundles; pricing

Climate Change, Insurability of Large-scale Disasters and the Emerging Liability Challenge

This paper focuses on the interaction between uncertainty and insurability in the context of some of the risks associated with climate change. It discusses the evolution of insured losses due to weather-related disasters over the past decade, and the key drivers of the sharp increases in both economic and insured catastrophe losses over the past 20 years. In particular we examine the impact of development in hazard-prone areas and of global warming on the potential for catastrophic losses in the future. In this context we discuss the implications for insurance risk capital and the capacity of the insurance industry to handle large-scale events. A key question that needs to be addressed is the factors that determine the insurability of a risk and the extent of coverage offered by the private sector to provide protection against extreme events where there is significant uncertainty surrounding the probability and consequences of a catastrophic loss. We discuss the concepts of insurability by focusing on coverage for natural hazards, such as earthquakes, hurricanes and floods. The paper also focuses on the liability issues associated with global climate change, and possible implications for insurers (including D&O), given the difficulty in identifying potential defendants, tracing harm to their actions and apportioning damages among them. The paper concludes by suggesting ways that insurers can help mitigate future damages from global climate change by providing premium reductions and rate credits to companies investing in risk-reducing measures.

Risk-specific search for risk-defusing operators

According to the concept of “active risk-defusing behavior”, decision makers in risky situations look for additional actions that reduce risk and allow them to favor the more risky alternative. Our study demonstrates that risk-defusing behavior depends on the type of risk (normal, medium, catastrophic or global) as well as on the domain (health, economy or ecology). In total, 12 scenarios (four risk types from three risk domains each) were constructed. Using the interview techniques of active information search and thinking-aloud, 120 interviews about decision-making processes with these scenarios were conducted. They showed that the active search for different risk-defusing operators depends on the type of risk, but even more on the domain of the scenario. Results suggest a need for further research about a typology of risk situations in which, besides formal classification criteria, content issues are also explored

Global policymakers and catastrophic risk

There is a rapidly developing literature on risks that threaten the whole of humanity, or a large part of it. Discussion is increasingly turning to how such risks can be governed. This paper arises from a study of those involved the governance of risks from emerging technologies, examining the perceptions of global catastrophic risk within the relevant global policymaking community. Those who took part were either civil servants working for the UK government, U.S. Congress, the United Nations, and the European Commission, or cognate members of civil society groups and the private sector. Analysis of interviews identified four major themes: Scepticism; Realism; Influence; and Governance outside of Government. These themes provide evidence for the value of conceptualising the governance of global catastrophic risk as a unified challenge. Furthermore, they highlight the range of agents involved in governance of emerging technology and give reason to value reforms carried out sub-nationally

Managing unknown risks: the future of global reinsurance

It has been said that insurance is the last of the financial services to accept radical change (Denney [1995-1996]). Yet there has been a fundamental shift in the geographic location and in the organization of the reinsurance industry in the last six years (Chichilnisky [19966]). Global environmental risks are partly responsible for this change; increased weather volatility and catastrophic risks are difficult to diversify using traditional insurance practices. To provide a map to the future, we need a realistic appraisal of how we got where we are. This is the story of how humans have hedged risks. There are two basic and distinct approaches: statistical and economic. The former is typical of the insurance industry; the latter typifies the securities industry. Both are needed to manage today's catastrophic risks. Neither alone will do. We show how a combination of both leads to efficient outcomes, and is the way to the future (Chichilnisky [1996a, 1996b, 1996d]).insurance; risk; global finance; environment; catastrophe bundles; climate change

The Fragile World Hypothesis: Complexity, Fragility, and Systemic Existential Risk

The possibility of social and technological collapse has been the focus of science fiction tropes for decades, but more recent focus has been on specific sources of existential and global catastrophic risk. Because these scenarios are simple to understand and envision, they receive more attention than risks due to complex interplay of failures, or risks that cannot be clearly specified. In this paper, we discuss the possibility that complexity of a certain type leads to fragility which can function as a source of catastrophic or even existential risk. The paper first reviews a hypothesis by Bostrom about inevitable technological risks, named the vulnerable world hypothesis. This paper next hypothesizes that fragility may not only be a possible risk, but could be inevitable,and would therefore be a subclass or example of Bostrom’s vulnerable worlds. After introducing the titular fragile world hypothesis, the paper details the conditions under which it would be correct, and presents arguments for why the conditions may in fact may apply. Finally, the assumptions and potential mitigations of the new hypothesis are contrasted with those Bostrom suggests