Three essays on environmental disasters

The thesis is a collection of three papers focusing on the economics of natural disasters and climate change studies, each work investigate the topic from different perspectives and using the different tool. In the first paper: “Climate change, catastrophes and the Dismal Theorem: a critical review” I review in depth the main studies in the field. In the second paper, “Living on the Edge of the Catastrophe”, I provide a theoretical model on policy design under risk of suffering a natural disaster. In the third paper ,“Environmental Disasters and Electoral Cycle: An Empirical Analysis on Floods and Landslides in Italy”, I provide an empirical model linked to a political agency model, in order to address land policy (and consequently the soil sealing phenomena) in Italy during the last decades. Through the first paper Climate change, catastrophes and the Dismal Theorem: a critical review, we provide an overview of the main studies about catastrophic scenarios and environmental policy in the presence of natural disaster risk related to climate change. The investigation is able to discuss how the literature has analysed these topics, modelling extreme case scenarios. Thus we focus on the main criticalities on the point such that the inter-generational equity, the debate around the use of a proper time rate preference and the consequent debate on the usefulness of Expected Utility theory in modelling catastrophic climate change with respect to the long time horizon. We focus on works have been able to provide answers and interesting policy recommendation and useful technicalities to use. This, reviewing also the most recent theoretically evolution on the assumption of rationality, investigating the newest papers entailing experimental approach. The second paper Living on the edge of the Catastrophe, provides a theoretical model analysing environmental policy under uncertainty regarding the possibility of a natural disaster. We adopt a two-periods analytical model, to investigate two different institutional settings, one featuring a myopic social planner, choosing emissions in each time period to maximize current net benefits, and one featuring a forward-looking planner, who maximizes the expected net present value of welfare across the two periods. The, uncertainty regards a threshold pollution level that, if violated, triggers a natural disaster. We conclude that under a myopic social planner welfare may increase or decrease over time, while in a non-myopic scenario welfare always increases across periods. Also, our model supports the idea that a myopic social planner pushes emissions closer to the edge of the natural disaster, but then, if the latter does not take place in the first period, benefits from having done that in terms of welfare in the second period. Introducing a stochastic decay rate, we also show that the environment may reward (punish) myopic behaviour ex post. Finally, the comparison between myopic and forward looking settings is not straightforward: this depends on a risk spreading vs. information learning trade off. Throughout the third paper Environmental Disasters and Electoral Cycle: An Empirical Analysis on Floods and Landslides in Italy, we provide an empirical analysis on natural disasters concerning the potential drivers of regulators behaviour in the presence of risky actions. More specifically, we focus our attention on floods and landslides, and we select building permits as our measure of regulatory stringency. We first build up a simplified theoretical framework based on public economics and political agency model, and than we derive theoretical results to be tested empirically. This is done by relying on a unique dataset covering Italy in the period 1995-2013 and containing information on soil sealing, building permits and natural disasters (floods and landslides), together with data on elections, at provincial level. Our main conclusions suggest that the electoral cycle is an important driver of building permits: anticipated elections increase permits significantly while unanticipated ones do not. Further, a bad history in terms of disasters decreases permits, suggesting that such a bad history strengthens the relevance of “green” voters, but regulators and voters have “short memory”, as the impact vanishes after a relatively short time span.