Int Adv Econ Res (2018) 24:105–106 https://doi.org/10.1007/s11294-018-9669-9 RESEARCH NOTE Prospect Theory: a Global Income Elasticity for Disaster Risk Antong Victorio Published online: 1 February 2018 International Atlantic Economic Society 2018 . . . . . JEL C10 D00 D80 F01 O50 G32 An income elasticity for disaster risk is derived from prospect theory and estimated using country-level data. There is some debate as to the sign of the income elasticity for disaster risk (e.g. Toya and Skidmore, Economics Letters, 2007; Kellenberg and Mobarak, Journal of Urban Economics, 2008). If the sign was negative, an increase in incomes that occurs with economic development could be relied upon by policy- makers to automatically mitigate the adverse impact of disasters. If instead the sign were positive, the reasons must be identified and appropriate measures undertaken. In relation to prospect theory (Kahneman and Tversky, Econometrica, 1979), disaster risk can be derived as the probability of a loss associated with the value of an extreme outcome. If the prospect-theory equation were held unchanged and the riskless component were treated as a constant, the income elasticity becomes equal to the ratio of a percentage change in the probability of a loss, to a percentage change
International Advances in Economic Research – Springer Journals
Published: Feb 1, 2018
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