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Natural disasters impacting a macroeconomic model with endogenous dynamics

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  • Hallegatte, Stéphane
  • Ghil, Michael

Abstract

We investigate the macroeconomic response to natural disasters by using an endogenous business cycle (EnBC) model in which cyclical behavior arises from the investment-profit instability. Our model exhibits a larger response to natural disasters during expansions than during recessions. This apparently paradoxical result can be traced to the disasters amplifying pre-existing disequilibria during expansions, while the existence of unused resources during recessions damps the exogenous shocks. It thus appears that high-growth periods are also highly vulnerable to supply-side shocks. In our EnBC model, the average production loss due to a set of disasters distributed at random in time is highly sensitive to the dynamical characteristics of the impacted economy. Larger economic flexibility allows for a more efficient and rapid response to supply-side shocks and reduces production losses. On the other hand, too high a flexibility can lead to vulnerability phases that cause average production losses to soar. These results raise questions about the assessment of climate change damages or natural disaster losses that are based purely on long-term growth models.

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Bibliographic Info

Article provided by Elsevier in its journal Ecological Economics.

Volume (Year): 68 (2008)
Issue (Month): 1-2 (December)
Pages: 582-592

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Handle: RePEc:eee:ecolec:v:68:y:2008:i:1-2:p:582-592

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Web page: http://www.elsevier.com/locate/ecolecon

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Keywords: Macroeconomic dynamics Non-equilibrium modeling Business cycles Investment flexibility Natural hazards;

References

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Citations

RePEc Biblio mentions

As found on the RePEc Biblio, the curated bibliography for Economics:
  1. > Environmental and Natural Resource Economics > Climate economics > Climate and development
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Cited by:
  1. Stéphane Hallegatte & Valentin Przyluski, 2010. "The Economics of Natural Disasters," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 11(2), pages 14-24, 07.
  2. Kunreuther, Howard & Michel-Kerjan, Erwann, 2012. "Impact of behavioral issues on green growth policies and weather-related disaster reduction in developing countries," Policy Research Working Paper Series 6241, The World Bank.
  3. Stéphane Hallegatte & Fanny Henriet, 2008. "Assessing the Consequences of Natural Disasters on Production Networks: A Disaggregated Approach," Working Papers 2008.100, Fondazione Eni Enrico Mattei.
  4. Safarzyńska, Karolina & Brouwer, Roy & Hofkes, Marjan, 2013. "Evolutionary modelling of the macro-economic impacts of catastrophic flood events," Ecological Economics, Elsevier, vol. 88(C), pages 108-118.
  5. Céline Guivarch & Renaud Crassous & Olivier Sassi & Stephane Hallegatte, 2011. "The costs of climate policies in a second best world with labour market imperfections," Post-Print halshs-00724487, HAL.
  6. Nicola Ranger & Stéphane Hallegatte & Sumana Bhattacharya & Murthy Bachu & Satya Priya & K. Dhore & Farhat Rafique & P. Mathur & Nicolas Naville & Fanny Henriet & Celine Herweijer & Sanjib Pohit & Ja, 2011. "An assessment of the potential impact of climate change on flood risk in Mumbai," Climatic Change, Springer, vol. 104(1), pages 139-167, January.
  7. repec:hal:wpaper:hal-00866429 is not listed on IDEAS
  8. Wenzel, Lars & Wolf, André, 2013. "Protection against major catastrophes: An economic perspective," HWWI Research Papers 137, Hamburg Institute of International Economics (HWWI).
  9. Hallegatte, Stephane, 2012. "Modeling the roles of heterogeneity, substitution, and inventories in the assessment of natural disaster economic costs," Policy Research Working Paper Series 6047, The World Bank.
  10. Hallegatte, Stephane, 2014. "Economic resilience: definition and measurement," Policy Research Working Paper Series 6852, The World Bank.
  11. Guangwei Huang, 2014. "Does a Kuznets curve apply to flood fatality? A holistic study for China and Japan," Natural Hazards, International Society for the Prevention and Mitigation of Natural Hazards, vol. 71(3), pages 2029-2042, April.
  12. Jochen Hinkel & Detlef Vuuren & Robert Nicholls & Richard Klein, 2013. "The effects of adaptation and mitigation on coastal flood impacts during the 21st century. An application of the DIVA and IMAGE models," Climatic Change, Springer, vol. 117(4), pages 783-794, April.
  13. Alex Bowen & Sarah Cochrane & Samuel Fankhauser, 2012. "Climate change, adaptation and economic growth," Climatic Change, Springer, vol. 113(2), pages 95-106, July.
  14. Trond G. Husby & Henri L.F. de Groot & Marjan W. Hofkes & Martijn I. Dröes, 2013. "Do Floods have Permanent Effects? Evidence from the Netherlands," Tinbergen Institute Discussion Papers 13-159/VIII, Tinbergen Institute.
  15. repec:hal:ciredw:hal-00866429 is not listed on IDEAS

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