How Economic Growth and Rational Decisions Can Make Disaster Losses Grow Faster Than Wealth
Assuming that capital productivity is higher in areas at risk from natural hazards (such as coastal zones or flood plains), this paper shows that rapid development in these areas -- and the resulting increase in disaster losses -- may be the conseq...
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
2012
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| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110329162349 http://hdl.handle.net/10986/3384 |
| Summary: | Assuming that capital productivity is
higher in areas at risk from natural hazards (such as
coastal zones or flood plains), this paper shows that rapid
development in these areas -- and the resulting increase in
disaster losses -- may be the consequence of a rational and
well-informed trade-off between lower disaster losses and
higher productivity. With disasters possibly becoming less
frequent but increasingly destructive in the future, average
disaster losses may grow faster than wealth. Myopic
expectations, lack of information, moral hazard, and
externalities reinforce the likelihood of this scenario.
These results have consequences on how to design risk
management and climate change policies. |
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