This paper uses a dynamic optimization model to estimate the welfare gains that a small open economy can derive from insuring against natural disasters with catastrophe (CAT) bonds. We calibrate the model by reference to the risk of earthquakes, floods and storms in developing countries. We find...

This paper uses a dynamic optimization model to estimate the welfare gains that a small open economy can derive from insuring against natural disasters with catastrophe (CAT) bonds. We calibrate the model by reference to the risk of earthquakes, floods and storms in developing countries. We find...

Federal relief and insurance programs for households living in areas subject to natural disasters have evolved in the absence of private insurance. Conventional wisdom suggests that these programs serve only to subsidize those choosing to live in hazardous areas at the expense of the taxpaying...