THE ECONOMICS OF CATASTROPHES

Catastrophes can profitably be thought of as economic events. This ess ay begins by considering the consumption of catastrophes, stressing th e way that we disseminate information about them, and respond, possibl y on a nonrational basis. Catastrophes are produced through a combinat ion of actions by nature and humans. Due to inappropriate incentives, human actions often exacerbate outcomes. This is particularly true in ''micromotive'' situations, such as the AIDS epidemic. where actions b y many players produce a collectively bad outcome. Mechanisms to preve nt or ameliorate catastrophes-liability, insurance, and government reg ulation-are considered.