The Indirect Cost of Natural Disasters and an Economic Definition of Macroeconomic Resilience

The welfare impact of a disaster does not depend only on the physical characteristics of the event or its direct impacts in terms of lost lives and assets. Depending on the ability of the economy to cope, recover, and reconstruct, the reconstructio...

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Main Author:	Hallegatte, Stephane
Format:	Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2015
Subjects:	ECONOMIC SITUATION RISKS GENERAL EQUILIBRIUM ANALYSIS ECONOMIC GROWTH STORM DISASTER RISK REDUCTION FINANCIAL RETURNS PRODUCTION PRICE INCREASES SUPPLY CURVE RISK REDUCTION DISASTER SITUATIONS INCOME INTEREST PROBABILITY OF OCCURRENCE EXPECTATIONS STORMS ECONOMETRIC ANALYSES INTEREST RATE EXPORTS POLITICAL ECONOMY REVENUES WELFARE SUPPLY CURVES EQUILIBRIUM MODELS DISASTER DISTRIBUTIONAL EFFECTS MARGINAL PRODUCTIVITY DAMAGES PRICE INPUTS ECONOMIC EQUILIBRIUM PAYMENTS WEALTH RISK AVERSE ECONOMIC LOSS VALUE OF OUTPUT HURRICANES SAFETY NETS SMALL BUSINESS PRESENT VALUE REDISTRIBUTIVE EFFECTS INFLUENCE CONSUMER SURPLUS TSUNAMI PRODUCTION FUNCTION NATURAL DISASTER MORAL HAZARD FLOODS RENT PRODUCTIVITY ECONOMETRICS EXTERNALITIES NATURAL DISASTERS DEMAND CURVES CRITERIA MARKETS DEBT ADVERSE CONSEQUENCES DISASTERS DIRECT VALUE DISASTER REDUCTION TAX REVENUES ECONOMIC MODELS INVENTORIES UTILITY DISCOUNTED VALUE GROSS DOMESTIC PRODUCT FINANCE ECONOMIC RESEARCH POSITIVE EXTERNALITY EQUILIBRIUM ANALYSIS GROWTH THEORIES TOTAL OUTPUT EXTERNALITY DROUGHTS BENEFIT‐COST ANALYSIS CONSUMPTION EARTHQUAKE ASSET VALUE CAPITAL WAGES DISASTER RISK CLIMATE CHANGE VALUE ECONOMIC VALUE PRODUCTION FUNCTIONS CREDIT EXTREME EVENTS DISASTER RISK FINANCING CLIMATE ECONOMIC SECTORS DEMAND NATIONAL INCOME PRODUCTIVE ASSETS CONSUMERS ECONOMY DEMAND CURVE MEASUREMENT ASSETS MARKET ECONOMIC THEORY FLOOD PRICE INCREASE EMERGENCY SERVICES POLICY ECONOMIC SYSTEMS INSURANCE BUSINESS CYCLES TRADE GDP GOODS THEORY AVERAGE PRODUCTIVITY HURRICANE ACCIDENTS SUPPLY ECONOMIC INDICATORS INVESTMENTS RISK MANAGEMENT INSURANCE COMPANIES LAND‐USE COST ANALYSIS PRICES ECONOMIC STATISTICS RECONSTRUCTION BENEFITS ECONOMIC PERSPECTIVE DEVELOPMENT POLICY
Online Access:	http://documents.worldbank.org/curated/en/2015/07/24744802/indirect-cost-natural-disasters-economic-definition-macroeconomic-resilience http://hdl.handle.net/10986/22238

id	okr-10986-22238
recordtype	oai_dc
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	ECONOMIC SITUATION RISKS GENERAL EQUILIBRIUM ANALYSIS ECONOMIC GROWTH STORM DISASTER RISK REDUCTION FINANCIAL RETURNS PRODUCTION PRICE INCREASES SUPPLY CURVE RISK REDUCTION DISASTER SITUATIONS INCOME INTEREST PROBABILITY OF OCCURRENCE EXPECTATIONS STORMS ECONOMETRIC ANALYSES INTEREST RATE EXPORTS POLITICAL ECONOMY REVENUES WELFARE SUPPLY CURVES EQUILIBRIUM MODELS DISASTER DISTRIBUTIONAL EFFECTS MARGINAL PRODUCTIVITY DAMAGES PRICE INPUTS INTEREST RATE ECONOMIC EQUILIBRIUM PAYMENTS WEALTH RISK AVERSE ECONOMIC LOSS VALUE OF OUTPUT HURRICANES SAFETY NETS SMALL BUSINESS PRESENT VALUE REDISTRIBUTIVE EFFECTS INFLUENCE CONSUMER SURPLUS TSUNAMI PRODUCTION FUNCTION NATURAL DISASTER MORAL HAZARD FLOODS RENT PRODUCTIVITY ECONOMETRICS EXTERNALITIES NATURAL DISASTERS DEMAND CURVES CRITERIA MARKETS DEBT ADVERSE CONSEQUENCES DISASTERS DIRECT VALUE DISASTER REDUCTION TAX REVENUES ECONOMIC MODELS INVENTORIES UTILITY DISCOUNTED VALUE GROSS DOMESTIC PRODUCT FINANCE SUPPLY CURVE ECONOMIC RESEARCH POSITIVE EXTERNALITY EQUILIBRIUM ANALYSIS GROWTH THEORIES TOTAL OUTPUT EXTERNALITY DROUGHTS BENEFIT‐COST ANALYSIS CONSUMPTION EARTHQUAKE ASSET VALUE DISASTER REDUCTION CAPITAL WAGES DISASTER RISK CLIMATE CHANGE VALUE ECONOMIC VALUE PRODUCTION FUNCTIONS CREDIT EXTREME EVENTS DISASTER RISK FINANCING CLIMATE ECONOMIC SECTORS DEMAND NATIONAL INCOME PRODUCTIVE ASSETS CONSUMERS ECONOMY DEMAND CURVE NATURAL DISASTER GROSS DOMESTIC PRODUCT MEASUREMENT ASSETS MARKET MARGINAL PRODUCTIVITY ECONOMIC VALUE ECONOMIC THEORY FLOOD PRICE INCREASE ECONOMIC SITUATION EMERGENCY SERVICES ADVERSE CONSEQUENCES PRODUCTION FUNCTION POLICY ECONOMIC MODELS ECONOMIC SYSTEMS ECONOMIC EQUILIBRIUM INSURANCE BUSINESS CYCLES TRADE GDP GOODS THEORY GENERAL EQUILIBRIUM ANALYSIS AVERAGE PRODUCTIVITY HURRICANE ECONOMIC THEORY ACCIDENTS CONSUMER SURPLUS ECONOMIC SECTORS POSITIVE EXTERNALITY EMERGENCY SERVICES SUPPLY DISASTER RISK REDUCTION ECONOMIC INDICATORS INVESTMENTS RISK MANAGEMENT DISASTER RISK INSURANCE COMPANIES TOTAL OUTPUT AVERAGE PRODUCTIVITY LAND‐USE COST ANALYSIS PRICES ECONOMIC STATISTICS RECONSTRUCTION BENEFITS ECONOMIC PERSPECTIVE NATURAL DISASTERS DEVELOPMENT POLICY REDISTRIBUTIVE EFFECTS
spellingShingle	ECONOMIC SITUATION RISKS GENERAL EQUILIBRIUM ANALYSIS ECONOMIC GROWTH STORM DISASTER RISK REDUCTION FINANCIAL RETURNS PRODUCTION PRICE INCREASES SUPPLY CURVE RISK REDUCTION DISASTER SITUATIONS INCOME INTEREST PROBABILITY OF OCCURRENCE EXPECTATIONS STORMS ECONOMETRIC ANALYSES INTEREST RATE EXPORTS POLITICAL ECONOMY REVENUES WELFARE SUPPLY CURVES EQUILIBRIUM MODELS DISASTER DISTRIBUTIONAL EFFECTS MARGINAL PRODUCTIVITY DAMAGES PRICE INPUTS INTEREST RATE ECONOMIC EQUILIBRIUM PAYMENTS WEALTH RISK AVERSE ECONOMIC LOSS VALUE OF OUTPUT HURRICANES SAFETY NETS SMALL BUSINESS PRESENT VALUE REDISTRIBUTIVE EFFECTS INFLUENCE CONSUMER SURPLUS TSUNAMI PRODUCTION FUNCTION NATURAL DISASTER MORAL HAZARD FLOODS RENT PRODUCTIVITY ECONOMETRICS EXTERNALITIES NATURAL DISASTERS DEMAND CURVES CRITERIA MARKETS DEBT ADVERSE CONSEQUENCES DISASTERS DIRECT VALUE DISASTER REDUCTION TAX REVENUES ECONOMIC MODELS INVENTORIES UTILITY DISCOUNTED VALUE GROSS DOMESTIC PRODUCT FINANCE SUPPLY CURVE ECONOMIC RESEARCH POSITIVE EXTERNALITY EQUILIBRIUM ANALYSIS GROWTH THEORIES TOTAL OUTPUT EXTERNALITY DROUGHTS BENEFIT‐COST ANALYSIS CONSUMPTION EARTHQUAKE ASSET VALUE DISASTER REDUCTION CAPITAL WAGES DISASTER RISK CLIMATE CHANGE VALUE ECONOMIC VALUE PRODUCTION FUNCTIONS CREDIT EXTREME EVENTS DISASTER RISK FINANCING CLIMATE ECONOMIC SECTORS DEMAND NATIONAL INCOME PRODUCTIVE ASSETS CONSUMERS ECONOMY DEMAND CURVE NATURAL DISASTER GROSS DOMESTIC PRODUCT MEASUREMENT ASSETS MARKET MARGINAL PRODUCTIVITY ECONOMIC VALUE ECONOMIC THEORY FLOOD PRICE INCREASE ECONOMIC SITUATION EMERGENCY SERVICES ADVERSE CONSEQUENCES PRODUCTION FUNCTION POLICY ECONOMIC MODELS ECONOMIC SYSTEMS ECONOMIC EQUILIBRIUM INSURANCE BUSINESS CYCLES TRADE GDP GOODS THEORY GENERAL EQUILIBRIUM ANALYSIS AVERAGE PRODUCTIVITY HURRICANE ECONOMIC THEORY ACCIDENTS CONSUMER SURPLUS ECONOMIC SECTORS POSITIVE EXTERNALITY EMERGENCY SERVICES SUPPLY DISASTER RISK REDUCTION ECONOMIC INDICATORS INVESTMENTS RISK MANAGEMENT DISASTER RISK INSURANCE COMPANIES TOTAL OUTPUT AVERAGE PRODUCTIVITY LAND‐USE COST ANALYSIS PRICES ECONOMIC STATISTICS RECONSTRUCTION BENEFITS ECONOMIC PERSPECTIVE NATURAL DISASTERS DEVELOPMENT POLICY REDISTRIBUTIVE EFFECTS Hallegatte, Stephane The Indirect Cost of Natural Disasters and an Economic Definition of Macroeconomic Resilience
relation	Policy Research Working Paper;No. 7357
description	The welfare impact of a disaster does not depend only on the physical characteristics of the event or its direct impacts in terms of lost lives and assets. Depending on the ability of the economy to cope, recover, and reconstruct, the reconstruction will be more or less difficult, and the welfare effects smaller or larger. This ability, which can be referred to as the macroeconomic resilience of the economy to natural disasters, is an important parameter to estimate the overall vulnerability of a population. Here, resilience is decomposed into two components: instantaneous resilience, which is the ability to limit the magnitude of the immediate loss of income for a given amount of capital losses, and dynamic resilience, which is the ability to reconstruct and recover quickly. The paper proposes a rule of thumb to estimate macroeconomic resilience, based on the interest rate (a higher interest rate decreases resilience and increases welfare losses), the reconstruction duration (a longer reconstruction duration increases welfare losses), and a “ripple-effect” factor that increases or decreases immediate losses (negative if enough idle resources are available to cope; positive if cross-sector and supply-chain issues impair the production of non-affected capital). An optimal risk management strategy is very likely to include measures to reduce direct impacts (disaster risk reduction actions) and measures to reduce indirect impacts (resilience building actions).
format	Working Paper
author	Hallegatte, Stephane
author_facet	Hallegatte, Stephane
author_sort	Hallegatte, Stephane
title	The Indirect Cost of Natural Disasters and an Economic Definition of Macroeconomic Resilience
title_short	The Indirect Cost of Natural Disasters and an Economic Definition of Macroeconomic Resilience
title_full	The Indirect Cost of Natural Disasters and an Economic Definition of Macroeconomic Resilience
title_fullStr	The Indirect Cost of Natural Disasters and an Economic Definition of Macroeconomic Resilience
title_full_unstemmed	The Indirect Cost of Natural Disasters and an Economic Definition of Macroeconomic Resilience
title_sort	indirect cost of natural disasters and an economic definition of macroeconomic resilience
publisher	World Bank, Washington, DC
publishDate	2015
url	http://documents.worldbank.org/curated/en/2015/07/24744802/indirect-cost-natural-disasters-economic-definition-macroeconomic-resilience http://hdl.handle.net/10986/22238
_version_	1764450503394066432
spelling	okr-10986-222382021-04-23T14:04:07Z The Indirect Cost of Natural Disasters and an Economic Definition of Macroeconomic Resilience Hallegatte, Stephane ECONOMIC SITUATION RISKS GENERAL EQUILIBRIUM ANALYSIS ECONOMIC GROWTH STORM DISASTER RISK REDUCTION FINANCIAL RETURNS PRODUCTION PRICE INCREASES SUPPLY CURVE RISK REDUCTION DISASTER SITUATIONS INCOME INTEREST PROBABILITY OF OCCURRENCE EXPECTATIONS STORMS ECONOMETRIC ANALYSES INTEREST RATE EXPORTS POLITICAL ECONOMY REVENUES WELFARE SUPPLY CURVES EQUILIBRIUM MODELS DISASTER DISTRIBUTIONAL EFFECTS MARGINAL PRODUCTIVITY DAMAGES PRICE INPUTS INTEREST RATE ECONOMIC EQUILIBRIUM PAYMENTS WEALTH RISK AVERSE ECONOMIC LOSS VALUE OF OUTPUT HURRICANES SAFETY NETS SMALL BUSINESS PRESENT VALUE REDISTRIBUTIVE EFFECTS INFLUENCE CONSUMER SURPLUS TSUNAMI PRODUCTION FUNCTION NATURAL DISASTER MORAL HAZARD FLOODS RENT PRODUCTIVITY ECONOMETRICS EXTERNALITIES NATURAL DISASTERS DEMAND CURVES CRITERIA MARKETS DEBT ADVERSE CONSEQUENCES DISASTERS DIRECT VALUE DISASTER REDUCTION TAX REVENUES ECONOMIC MODELS INVENTORIES UTILITY DISCOUNTED VALUE GROSS DOMESTIC PRODUCT FINANCE SUPPLY CURVE ECONOMIC RESEARCH POSITIVE EXTERNALITY EQUILIBRIUM ANALYSIS GROWTH THEORIES TOTAL OUTPUT EXTERNALITY DROUGHTS BENEFIT‐COST ANALYSIS CONSUMPTION EARTHQUAKE ASSET VALUE DISASTER REDUCTION CAPITAL WAGES DISASTER RISK CLIMATE CHANGE VALUE ECONOMIC VALUE PRODUCTION FUNCTIONS CREDIT EXTREME EVENTS DISASTER RISK FINANCING CLIMATE ECONOMIC SECTORS DEMAND NATIONAL INCOME PRODUCTIVE ASSETS CONSUMERS ECONOMY DEMAND CURVE NATURAL DISASTER GROSS DOMESTIC PRODUCT MEASUREMENT ASSETS MARKET MARGINAL PRODUCTIVITY ECONOMIC VALUE ECONOMIC THEORY FLOOD PRICE INCREASE ECONOMIC SITUATION EMERGENCY SERVICES ADVERSE CONSEQUENCES PRODUCTION FUNCTION POLICY ECONOMIC MODELS ECONOMIC SYSTEMS ECONOMIC EQUILIBRIUM INSURANCE BUSINESS CYCLES TRADE GDP GOODS THEORY GENERAL EQUILIBRIUM ANALYSIS AVERAGE PRODUCTIVITY HURRICANE ECONOMIC THEORY ACCIDENTS CONSUMER SURPLUS ECONOMIC SECTORS POSITIVE EXTERNALITY EMERGENCY SERVICES SUPPLY DISASTER RISK REDUCTION ECONOMIC INDICATORS INVESTMENTS RISK MANAGEMENT DISASTER RISK INSURANCE COMPANIES TOTAL OUTPUT AVERAGE PRODUCTIVITY LAND‐USE COST ANALYSIS PRICES ECONOMIC STATISTICS RECONSTRUCTION BENEFITS ECONOMIC PERSPECTIVE NATURAL DISASTERS DEVELOPMENT POLICY REDISTRIBUTIVE EFFECTS The welfare impact of a disaster does not depend only on the physical characteristics of the event or its direct impacts in terms of lost lives and assets. Depending on the ability of the economy to cope, recover, and reconstruct, the reconstruction will be more or less difficult, and the welfare effects smaller or larger. This ability, which can be referred to as the macroeconomic resilience of the economy to natural disasters, is an important parameter to estimate the overall vulnerability of a population. Here, resilience is decomposed into two components: instantaneous resilience, which is the ability to limit the magnitude of the immediate loss of income for a given amount of capital losses, and dynamic resilience, which is the ability to reconstruct and recover quickly. The paper proposes a rule of thumb to estimate macroeconomic resilience, based on the interest rate (a higher interest rate decreases resilience and increases welfare losses), the reconstruction duration (a longer reconstruction duration increases welfare losses), and a “ripple-effect” factor that increases or decreases immediate losses (negative if enough idle resources are available to cope; positive if cross-sector and supply-chain issues impair the production of non-affected capital). An optimal risk management strategy is very likely to include measures to reduce direct impacts (disaster risk reduction actions) and measures to reduce indirect impacts (resilience building actions). 2015-07-20T16:34:32Z 2015-07-20T16:34:32Z 2015-07 Working Paper http://documents.worldbank.org/curated/en/2015/07/24744802/indirect-cost-natural-disasters-economic-definition-macroeconomic-resilience http://hdl.handle.net/10986/22238 English en_US Policy Research Working Paper;No. 7357 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper

The Indirect Cost of Natural Disasters and an Economic Definition of Macroeconomic Resilience

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