@unpublished {65486,
	title = {On the Welfare Costs of Consumption Uncertainty},
	year = {2007},
	note = {},
	month = {Nov 1, 2007},
	abstract = {Satisfactory calculations of the welfare cost of aggregate consumption uncertainty require a framework that replicates major features of asset prices and returns, such as the high equity premium and low risk-free rate. A Lucas-tree model with rare but large disasters is such a framework. In the baseline simulation, the welfare cost of disaster risk is large{\textemdash}society would be willing to lower real GDP by about 20\% each year to eliminate all disaster risk. In contrast, the welfare cost from usual economic fluctuations is much smaller, though still important{\textemdash}corresponding to lowering GDP by around 1.5\% each year.},
	author = {Robert J. Barro}
}
