How prepared is prepared enough?

Decisions about disaster preparedness are rarely informed by cost-benefit analyses. This paper presents an economic model to address the thorny question, 'how prepared is prepared enough?' Difficulties related to the use of cost-benefit analysis in the field of disaster management concern the tension between the large number of high-probability events that can be handled by a single emergency response unit and the small number of low-probability events that must be handled by a large number of them. A further special feature of disaster management concerns the opportunity for cooperation between different emergency response units.