Longterm decision making under the threat of earthquakes

Carmen Camacho (1, 2) , Yu Sun (3, 4)

1 PJSE - Paris Jourdan Sciences Economiques
2 PSE - Paris School of Economics
3 CORE - Center of Operation Research and Econometrics [Louvain]
4 LSE - London School of Economics and Political Science

Under the threat of earthquakes, long-term policy makers need tools to decide optimally on the economic trajectories that maximize the society welfare. Tools should be flexible and account for the consequences of earthquakes, incorporating the best estimate of their frequency and intensity. In this regard, we propose in this paper a modeling strategy that combines optimal control techniques and Bayesian learning: after an earthquake occurs, policy makers can improve their knowledge and adjust policies optimally. Two numerical examples illustrate the advantages of our modelling strategy along different dimensions. While Japan symbolizes the policy maker who has learned from earthquakes protecting the economy accordingly; Italy helps us illustrate the importance of prevention capital.

Mots clés: Bayesian Learning; Earthquakes; Prevention; Policy Making; Economic; Growth

Domaines: Economies et finances

Carmen Camacho, Yu Sun. Longterm decision making under the threat of earthquakes. 2017. ⟨halshs-01670507⟩