Are Losses from Natural Disasters More Than Just Asset Losses? : The Role of Capital Aggregation, Sector Interactions, and Investment Behaviors
The welfare impact of a natural disaster depends on its effect on consumption, not only on the direct asset losses and human losses that are usually estimated and reported after disasters. This paper proposes a framework to assess disaster-related...
| Main Authors: | , |
|---|---|
| Format: | Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2016
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/488681478879461092/Are-losses-from-natural-disasters-more-than-just-asset-losses-the-role-of-capital-aggregation-sector-interactions-and-investment-behaviors http://hdl.handle.net/10986/25687 |
| Summary: | The welfare impact of a natural disaster
depends on its effect on consumption, not only on the direct
asset losses and human losses that are usually estimated and
reported after disasters. This paper proposes a framework to
assess disaster-related consumption losses, starting from an
estimate of the asset losses, and leading to the following
findings. First, output losses after a disaster destroys
part of the capital stock are better estimated by using the
average—not the marginal—productivity of capital. A model
that describes capital in the economy as a single
homogeneous stock would systematically underestimate
disaster output losses, compared with a model that tracks
capital in different sectors with limited reallocation
options. Second, the net present value of disaster-caused
consumption losses decreases when reconstruction is
accelerated. With standard parameters, discounted
consumption losses are only 10 percent larger than asset
losses if reconstruction is completed in one year, compared
with 80 percent if reconstruction takes 10 years. Third, for
disasters of similar magnitude, consumption losses are
expected to be lower where the productivity of capital is
higher, such as in capital-scarce developing countries. This
mechanism may partly compensate for the many other factors
that make poor countries and poor people more vulnerable to disasters. |
|---|