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Earthquake vulnerability reduction program in Colombia : a probabilistic cost-benefit analysis

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  • Ghesquiere, Francis
  • Jamin, Luis
  • Mahul, Olivier
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    Abstract

    Cost-benefit analysis is a standard tool for determining the efficiency of planned projects. But one of the major difficulties in risk mitigation investments is that benefits are by nature uncertain. In this context, the standard approach relying on the average value of benefits may provide an incomplete picture of the efficiency of the risk mitigation project under consideration. This paper presents a probabilistic cost-benefit analysis relying on a catastrophe risk model. It produces risk metrics such as the exceedance probability curve of the benefit-cost ratio, thus providing the decisionmaker with a more complete risk analysis of the net benefits of the project. This is illustrated with the earthquake vulnerability reduction project in Colombia.

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3939.

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    Date of creation: 01 Jun 2006
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    Handle: RePEc:wbk:wbrwps:3939

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    Related research

    Keywords: Insurance&Risk Mitigation; Investment and Investment Climate; Banks&Banking Reform; Natural Disasters; Non Bank Financial Institutions;

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    1. Cropper, Maureen L & Aydede, Sema K & Portney, Paul R, 1992. "Rates of Time Preference for Saving Lives," American Economic Review, American Economic Association, vol. 82(2), pages 469-72, May.
    2. Arrow, Kenneth J & Lind, Robert C, 1970. "Uncertainty and the Evaluation of Public Investment Decisions," American Economic Review, American Economic Association, vol. 60(3), pages 364-78, June.
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    Cited by:
    1. Ghesquiere, Francis & Mahul, Olivier, 2007. "Sovereign natural disaster insurance for developing countries : a paradigm shift in catastrophe risk financing," Policy Research Working Paper Series 4345, The World Bank.

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