Solving Commitment Problems in Disaster Risk Finance
Those at risk from natural disasters are typically under-protected, possibly because they expect benefactors such as governments and donors to come to their aid. Yet when relief comes, it is often insufficient, delayed or misallocated. Benefactors...
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| Format: | Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2016
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| Online Access: | http://documents.worldbank.org/curated/en/2016/06/26510516/solving-commitment-problems-disaster-risk-finance http://hdl.handle.net/10986/24638 |
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okr-10986-246382021-04-23T14:04:23Z Solving Commitment Problems in Disaster Risk Finance Clarke, Daniel J. Wren-Lewis, Liam RISKS UNCERTAINTIES RESCUE NATURAL DISASTER INSURANCE EARLY WARNING PUBLIC ECONOMICS RISK REDUCTION WIND SPEED INCOME INTEREST MARGINAL COST INSURER INFORMATION PROGRAMS REVENUES WELFARE INSURANCE POLICIES LUMP SUM INCENTIVES DISASTER MODELS PRICING PRIVATE REINSURANCE PRIVATE INSURANCE PRICE INSURANCE RISK INFORMATION SYSTEMS INSURANCE SCHEME EARTHQUAKES INSURANCE COMPANY CATASTROPHE INSURANCE DISASTER RELIEF CROP INSURANCE REINSURERS SAVINGS INSURANCE SYSTEMS RELIEF DEVELOPMENT ECONOMICS NATURAL DISASTER DISASTER RESPONSE MORAL HAZARD INSURANCE PRODUCT INSURANCE PAYOUT NATURAL DISASTERS MARKETS DISASTERS INSURERS RATES ACTUARIALLY FAIR INSURANCE CYCLONES FAMINE INSURANCE COVERAGE INSURANCE POLICY PUBLIC INSURANCE FINANCE BANKS DRAWN DOWN TECHNOLOGY REINSURANCE CONSUMPTION TROPICAL CYCLONE EMERGENCY EARTHQUAKE DISASTER REDUCTION DISASTER RISK POLICIES DROUGHT INSURANCE SCHEMES INSURANCE PRODUCTS CROP INSURANCE SCHEME VALUE LOSSES POLICY MAKERS BANK CREDIT INSURANCE CONTRACTS DISASTER RISK FINANCING CLIMATE AGRICULTURAL INSURANCE DEMAND UTILITY FUNCTION DROUGHT INSURANCE CONSUMERS DAMAGE DISASTER INSURANCE SCHEME NATURAL CATASTROPHE DISASTER INSURANCE INSURANCE REGULATION INSURANCE PREMIUM REGULATION RISK TRANSFER POLICY WORLD HEALTH ORGANIZATION INSURANCE LOSS AGENTS RISK INSURANCE DISASTER AID HURRICANE RISK INDEMNITY MITIGATION PRIVATE INSURANCE COMPANIES TROPICAL CYCLONES SUPPLY UNDERWRITING DISASTER RISK REDUCTION LAW INVESTMENTS RISK MANAGEMENT CROP INSURANCE PROGRAM INSURANCE COMPANIES MARGINAL UTILITY BASIS RISK COVERAGE RISK ASSESSMENT BENEFITS RECONSTRUCTION RISK MITIGATION PREMIUMS Those at risk from natural disasters are typically under-protected, possibly because they expect benefactors such as governments and donors to come to their aid. Yet when relief comes, it is often insufficient, delayed or misallocated. Benefactors may wish to commit to provide an efficient amount of fast well-targeted relief, and leave the rest up to recipients, but such commitments are difficult. This article analyses how transferring risk to third-parties such as private insurers may help resolve these commitment problems. Using a simple model of disaster risk finance is used to identify three distinct commitment problems and then show how various properties of risk transfer schemes can help to resolve these problems. The paper illustrates how these commitment problems play out using examples from around the world, and demonstrates where risk transfer schemes seem to have helped in practice. Overall, the findings show that the benefits of such schemes depend on the relative severity of the different commitment problems. 2016-07-07T21:19:00Z 2016-07-07T21:19:00Z 2016-06 Working Paper http://documents.worldbank.org/curated/en/2016/06/26510516/solving-commitment-problems-disaster-risk-finance http://hdl.handle.net/10986/24638 English en_US Policy Research Working Paper;No. 7720 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 |
| 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 |
RISKS UNCERTAINTIES RESCUE NATURAL DISASTER INSURANCE EARLY WARNING PUBLIC ECONOMICS RISK REDUCTION WIND SPEED INCOME INTEREST MARGINAL COST INSURER INFORMATION PROGRAMS REVENUES WELFARE INSURANCE POLICIES LUMP SUM INCENTIVES DISASTER MODELS PRICING PRIVATE REINSURANCE PRIVATE INSURANCE PRICE INSURANCE RISK INFORMATION SYSTEMS INSURANCE SCHEME EARTHQUAKES INSURANCE COMPANY CATASTROPHE INSURANCE DISASTER RELIEF CROP INSURANCE REINSURERS SAVINGS INSURANCE SYSTEMS RELIEF DEVELOPMENT ECONOMICS NATURAL DISASTER DISASTER RESPONSE MORAL HAZARD INSURANCE PRODUCT INSURANCE PAYOUT NATURAL DISASTERS MARKETS DISASTERS INSURERS RATES ACTUARIALLY FAIR INSURANCE CYCLONES FAMINE INSURANCE COVERAGE INSURANCE POLICY PUBLIC INSURANCE FINANCE BANKS DRAWN DOWN TECHNOLOGY REINSURANCE CONSUMPTION TROPICAL CYCLONE EMERGENCY EARTHQUAKE DISASTER REDUCTION DISASTER RISK POLICIES DROUGHT INSURANCE SCHEMES INSURANCE PRODUCTS CROP INSURANCE SCHEME VALUE LOSSES POLICY MAKERS BANK CREDIT INSURANCE CONTRACTS DISASTER RISK FINANCING CLIMATE AGRICULTURAL INSURANCE DEMAND UTILITY FUNCTION DROUGHT INSURANCE CONSUMERS DAMAGE DISASTER INSURANCE SCHEME NATURAL CATASTROPHE DISASTER INSURANCE INSURANCE REGULATION INSURANCE PREMIUM REGULATION RISK TRANSFER POLICY WORLD HEALTH ORGANIZATION INSURANCE LOSS AGENTS RISK INSURANCE DISASTER AID HURRICANE RISK INDEMNITY MITIGATION PRIVATE INSURANCE COMPANIES TROPICAL CYCLONES SUPPLY UNDERWRITING DISASTER RISK REDUCTION LAW INVESTMENTS RISK MANAGEMENT CROP INSURANCE PROGRAM INSURANCE COMPANIES MARGINAL UTILITY BASIS RISK COVERAGE RISK ASSESSMENT BENEFITS RECONSTRUCTION RISK MITIGATION PREMIUMS |
| spellingShingle |
RISKS UNCERTAINTIES RESCUE NATURAL DISASTER INSURANCE EARLY WARNING PUBLIC ECONOMICS RISK REDUCTION WIND SPEED INCOME INTEREST MARGINAL COST INSURER INFORMATION PROGRAMS REVENUES WELFARE INSURANCE POLICIES LUMP SUM INCENTIVES DISASTER MODELS PRICING PRIVATE REINSURANCE PRIVATE INSURANCE PRICE INSURANCE RISK INFORMATION SYSTEMS INSURANCE SCHEME EARTHQUAKES INSURANCE COMPANY CATASTROPHE INSURANCE DISASTER RELIEF CROP INSURANCE REINSURERS SAVINGS INSURANCE SYSTEMS RELIEF DEVELOPMENT ECONOMICS NATURAL DISASTER DISASTER RESPONSE MORAL HAZARD INSURANCE PRODUCT INSURANCE PAYOUT NATURAL DISASTERS MARKETS DISASTERS INSURERS RATES ACTUARIALLY FAIR INSURANCE CYCLONES FAMINE INSURANCE COVERAGE INSURANCE POLICY PUBLIC INSURANCE FINANCE BANKS DRAWN DOWN TECHNOLOGY REINSURANCE CONSUMPTION TROPICAL CYCLONE EMERGENCY EARTHQUAKE DISASTER REDUCTION DISASTER RISK POLICIES DROUGHT INSURANCE SCHEMES INSURANCE PRODUCTS CROP INSURANCE SCHEME VALUE LOSSES POLICY MAKERS BANK CREDIT INSURANCE CONTRACTS DISASTER RISK FINANCING CLIMATE AGRICULTURAL INSURANCE DEMAND UTILITY FUNCTION DROUGHT INSURANCE CONSUMERS DAMAGE DISASTER INSURANCE SCHEME NATURAL CATASTROPHE DISASTER INSURANCE INSURANCE REGULATION INSURANCE PREMIUM REGULATION RISK TRANSFER POLICY WORLD HEALTH ORGANIZATION INSURANCE LOSS AGENTS RISK INSURANCE DISASTER AID HURRICANE RISK INDEMNITY MITIGATION PRIVATE INSURANCE COMPANIES TROPICAL CYCLONES SUPPLY UNDERWRITING DISASTER RISK REDUCTION LAW INVESTMENTS RISK MANAGEMENT CROP INSURANCE PROGRAM INSURANCE COMPANIES MARGINAL UTILITY BASIS RISK COVERAGE RISK ASSESSMENT BENEFITS RECONSTRUCTION RISK MITIGATION PREMIUMS Clarke, Daniel J. Wren-Lewis, Liam Solving Commitment Problems in Disaster Risk Finance |
| relation |
Policy Research Working Paper;No. 7720 |
| description |
Those at risk from natural disasters are
typically under-protected, possibly because they expect
benefactors such as governments and donors to come to their
aid. Yet when relief comes, it is often insufficient,
delayed or misallocated. Benefactors may wish to commit to
provide an efficient amount of fast well-targeted relief,
and leave the rest up to recipients, but such commitments
are difficult. This article analyses how transferring risk
to third-parties such as private insurers may help resolve
these commitment problems. Using a simple model of disaster
risk finance is used to identify three distinct commitment
problems and then show how various properties of risk
transfer schemes can help to resolve these problems. The
paper illustrates how these commitment problems play out
using examples from around the world, and demonstrates where
risk transfer schemes seem to have helped in practice.
Overall, the findings show that the benefits of such schemes
depend on the relative severity of the different commitment problems. |
| format |
Working Paper |
| author |
Clarke, Daniel J. Wren-Lewis, Liam |
| author_facet |
Clarke, Daniel J. Wren-Lewis, Liam |
| author_sort |
Clarke, Daniel J. |
| title |
Solving Commitment Problems in Disaster Risk Finance |
| title_short |
Solving Commitment Problems in Disaster Risk Finance |
| title_full |
Solving Commitment Problems in Disaster Risk Finance |
| title_fullStr |
Solving Commitment Problems in Disaster Risk Finance |
| title_full_unstemmed |
Solving Commitment Problems in Disaster Risk Finance |
| title_sort |
solving commitment problems in disaster risk finance |
| publisher |
World Bank, Washington, DC |
| publishDate |
2016 |
| url |
http://documents.worldbank.org/curated/en/2016/06/26510516/solving-commitment-problems-disaster-risk-finance http://hdl.handle.net/10986/24638 |
| _version_ |
1764457248638107648 |