Catastrophe risk models for evaluating disaster risk reduction investments in developing countries

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|a Catastrophe risk models for evaluating disaster risk reduction investments in developing countries |h [electronic resource] |y English.

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|a [S.l.] : |b The Wharton School, University of Pennsylvania, |c 2012.

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|a Working Paper |n 2012-07.

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|a Refer to main document/publisher for use rights.

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|a Michel-Kerjan, E., Hochrainer-Stigler, S., Kunreuther, H., Linnerooth-Bayer, J., Mechler, R., Muir-Wood, R., Ranger, N., Vazirie, P., Young, M. (2012). Catastrophe risk models for evaluating disaster risk reduction investments in developing countries. The Wharton School, University of Pennsylvania.

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|a This document discusses catastrophe risk models used to estimate the benefits of disaster risk reduction (DRR) policies, applying them to the cases of St. Lucia and Istanbul, Turkey. A U.S. Federal Emergency Management Agency (FEMA) study of 4,000 DRR programs found that a US$1 investment in DRR yielded nearly US$4 in benefit. Similar cost-benefit ratios were found in a review of 21 studies on public and private investments in DRR. Despite the clear benefits, many local governments and individual households in hazard-prone areas have failed to make such investments. Cited reasons include short time horizons, fiscal constraints, and lack of information on the costs and benefits of DRR. Generally the initial costs of DRR seem much greater than the uncertain benefits of avoiding unknown scales of potential devastation. In developing societies it is difficult to justify spending limited resources on measures that prevent disasters that may not happen. And lastly, these societies often do not have the capacity to provide the evidence needed to support such investments. This document calls for the use of catastrophe modeling and cost-benefit analysis (CBA) for effective and efficient investing in DRR. This document uses a probabilistic catastrophe model based on four components: hazard, exposure, vulnerability, and loss. These components are used to determine the distribution of expected losses associated with all possible scenarios of disaster. This information is critical for making informed decisions as to what DRR measures make the most sense, both from a risk and economic standpoint, allowing for the tailoring of DRR measures to specific risk profiles. This paper applies a catastrophe model-based CBA to estimate the benefits of DRR for houses in St. Lucia facing hurricane risks, and those in Istanbul, Turkey facing earthquake risks. While the catastrophe model-based CBA is a powerful tool for DRR policy-making, some of its limitations must be acknowledged. One major barrier to the effective implementation of this model, particularly in the developing world, is the general lack of information regarding the physical vulnerability of structures. Such information is a crucial component of DRR. Another problem is a gap in the model regarding potential changes of risk over time, and their affects on the expected benefits of any given DRR measure. This is particularly problematic due to the uncertainty involved in determining climate change’s impact on disasters. Other factors likely to change risk profiles include development, urbanization, and population growth.

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|a Disaster Risk Reduction

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|a Risk management.

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|a Natural hazards and disasters.

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|a Michel-Kerjan, Erwann.

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|a Hochrainer-Stigler, Stefan.

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|a Kunreuther, Howard.

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|a Linnerooth-Bayer, Joanne.

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|a Mechler, Reinhard.

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|a Muir-Wood, Robert.

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|a Ranger, Nicola.

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|a Vaziri, Pantea.

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|a Young, Michael.

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|a Disaster Risk Reduction Program, Florida International University (DRR/FIU), |e summary contributor.

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|u http://dpanther.fiu.edu/dpService/dpPurlService/purl/FI13042134/00001 |y Click here for full text

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