There is a new Martin and Pindyck paper on this topic, “Averting Catastrophes: The Strange Economics of Scylla and Charybdis”:
How should we evaluate public policies or projects to avert or reduce the likelihood of a catastrophic event? Examples might include a greenhouse gas abatement policy to avert a climate change catastrophe, investments in vaccine technologies that would help respond to a “mega-virus,” or the construction of levees to avert major flooding. A policy to avert a particular catastrophe considered in isolation might be evaluated in a cost-benefit framework. But because society faces multiple potential catastrophes, simple cost-benefit analysis breaks down: Even if the benefit of averting each one exceeds the cost, we should not avert all of them. We explore the policy interdependence of catastrophic events, and show that considering these events in isolation can lead to policies that are far from optimal. We develop a rule for determining which events should be averted and which should not.
The ungated version is here, I do not at the moment see the link to the gated NBER version I printed out and read. The main point is simply that the shadow price of all these small anti-catastrophe investments goes up, the more of them we do, and thus we cannot do them all, even if every single investment appears to make sense on its own terms.
I think of this paper as providing a framework for assessing the debates between modern Progressives and pessimistic old school conservatives (not exactly the main debate we are seeing today by the way). The Progressive states “here is a potential or real catastrophe, let us fix it.” The pessimistic conservative says in response “there are far greater and less visible catastrophic dangers. We need to address those instead.” The pessimistic conservative usually is ignored, and so at the relevant margin it appears the Progressive is correct. Maybe in a sense the Progressive really is correct. But in another, more systemic sense the Progressive is walking a dangerous path. Society is losing the resources it may need to avert the more catastrophic catastrophes.
For the pessimistic conservative of course these often involve foreign policy threats, or they may involve “barbarism” more generally. I find also that pandemics are popular causes of concern with pessimistic conservatives.
Each time one of these Progressive remedies is adopted, the calculus looks even worse for the pessimistic conservative, as there are fewer resources left to address his causes for concern. Yet the danger of which the pessimistic conservative warns is greater each time, the longer we ignore it, and the more we devote our resources to other endeavors.
It is an interesting question whether optimistic libertarians or pessimistic conservatives have better (as opposed to more persuasive) arguments against Progressives. The optimistic libertarian can try “we have a better way of solving this problem!” The pessimistic conservative is still believing “we must neglect this issue so we can prepare for the even greater doom which may await us.” The Progressive prefers to argue from general grounds of benevolence, rather than debating which potential catastrophes to confront and neglect, and thus a quest for “free lunch” arguments ensues.
Some sophisticated Progressives may think they are in fact the best friends of the pessimistic conservatives. They may think the choice under consideration is not “which catastrophe to address?” but rather how we can build up our overall willingness to invest in preventing catastrophes. In this sense the Progressive may be presenting a valuable warm-up exercise, a bit like flexing the muscles for later combat. Imagine for instance if ACA were to also later help us monitor and confront a pandemic. Or if it gave us the political will to make other, later sacrifices. In that case Progressivism could well be right but only as the handmaiden of pessimistic conservatism and the Progressives would become the true Straussians, achieving one view under the guise of another.