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- Permanent Link:
- http://dpanther.fiu.edu/dpService/dpPurlService/purl/FI13010972/00001
Material Information
- Title:
- How economic growth and rational decisions can make disaster losses grow faster than wealth
- Series Title:
- Policy research working papers.
- Creator:
- Hallegatte, Stéphane
- Place of Publication:
- Washington, DC
- Publisher:
- World Bank
- Publication Date:
- 2011-03
- Copyright Date:
- 2011
- Language:
- English
- Physical Description:
- eBook : Document : International government publication; 1 online resource (20 p.)
Notes
- Summary:
- This paper utilizes an economic framework to analyze whether or not development in risky areas is based on a rational calculation regarding the lower disaster losses that can be gained from the higher economic productivity they offer. Hallegatte finds that despite increasing investment in risk reduction around the world, growth in economic losses due to disaster has been equal if not faster than economic growth, and that this is largely a factor of people increasingly moving and investing in areas of high risk. Theories regarding information and transaction costs, moral hazard, market failures, and biased risk perceptions have all been used to explain this behavior. While these may play a role, the author believes that rational calculations based on the high productivity gains that can be attained from such moves may be a more plausible explanation. Investments in high risk areas may simply bring large enough benefits that discount and thus justify the increased risks. Though coastal zones and cities are often highly vulnerable to disasters, they also contain many drivers of economic growth that attract large numbers of people and investment. The author presents a mathematical model for determining whether or not richer populations’ investments to protect themselves against natural hazards balance out their propensity to build in at-risk areas. The research finds that while poor countries face disasters more frequently, these are typically low-cost events. Rich countries, on the other hand, rarely face disasters, but when they do, these tend to be catastrophic. Because the probability of a disaster in rich societies is rather low due to investment in and implementation of protective measures, peoples’ perceptions of disaster risk often become much lower than actual risk, thus leading to over-development in at-risk areas. As intervals between disasters become larger over time, businesses and other decision-makers begin to focus more exclusively on efficiency gains and less on disaster resilience. The author believes that with increased understanding of the actual risks that exist, it may be the case that losses are acceptable from an economic perspective if the loss of human life can be avoided through the establishment of early warning and evacuation systems, and the provision of insurance and relief for affected populations to spur recovery. It is concluded that action should not be focused on systematically reducing risk, but rather in managing the level of risk. This means limiting disaster losses while ensuring that it is still possible to take the risks necessary to yield large benefits, including resources to invest in mitigation measures. ( English )
- Subject:
- Economy and Disasters ( English )
- Scope and Content:
- 1. Introduction p. 2; 2. Larger disasters in a wealthier world? p, 3; 3. Taking into account myopic behaviors p. 10; 4. Conclusion p. 14; 5. Acknowledgments p. 15; 6. References p. 16 ( English )
- Citation/Reference:
- Hallegatte, S. (2011). How economic growth and rational decisions can make disaster losses grow faster than wealth. The World Bank.
Record Information
- Source Institution:
- Florida International University
- Rights Management:
- This publication is released under the Creative Commons Attribution 3.0 license. For full details of the license, please refer to the following: http://creative-commons.org/licenses/by/3.0/legalcode
- Resource Identifier:
- FI13010972
783118684 ( oclc )
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