Efficient Responses to Catastrophic Risk

I will begin my analysis of the catastrophic risk problem with the recent tsunami. Suppose that a tsunami as destructive as the one that struck the Indian Ocean occurs, on average, once a century and kills 250,000 people. That is an average of twenty-five hundred deaths per year. Even without attempting a sophisticated estimate of the value of life to the people exposed to the risk, one can say with some confidence that if an annual death toll of twenty-five hundred could be substantially reduced at a moderate cost, the investment would be worthwhile. A combination of educating the residents of low-lying coastal areas about the warning signs of a tsunami (tremors and a sudden recession in the ocean); establishing a warning system involving emergency broadcasts, telephoned warnings, and air raid-type sirens; and improving emergency response systems would have saved many of the people killed by the Indian Ocean tsunami, probably at a total cost below any reasonable estimate of the average losses that can be expected from tsunamis. Relocating people away from coasts would be even more efficacious, but except in the most vulnerable areas or in areas in which residential or commercial uses have only marginal value, the costs would probably exceed the benefits. This is because the annual costs of protection must be matched with annual, not total, expected costs of tsunamis. [CONT