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How economic growth and rational decisions can make disaster losses grow faster than wealth

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Author Info

  • Hallegatte, Stephane

Abstract

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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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5617.

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Date of creation: 01 Mar 2011
Date of revision:
Handle: RePEc:wbk:wbrwps:5617

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Related research

Keywords: Hazard Risk Management; Natural Disasters; Labor Policies; Insurance&Risk Mitigation; Economic Theory&Research;

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Cited by:
  1. Lemoyne de Forges, Sabine & Bibas, Ruben & Hallegatte, Stephane, 2011. "A dynamic model of extreme risk coverage : resilience and efficiency in the global reinsurance market," Policy Research Working Paper Series 5807, The World Bank.
  2. Stéphane Hallegatte & Geoffrey Heal & Marianne Fay & David Treguer, 2012. "From Growth to Green Growth - a Framework," NBER Working Papers 17841, National Bureau of Economic Research, Inc.
  3. Hallegatte, Stephane, 2012. "An exploration of the link between development, economic growth, and natural risk," Policy Research Working Paper Series 6216, The World Bank.
  4. Sabine Lemoyne De Forges & Ruben Bibas & Hallegatte Stéphane, 2001. "A dynamic model of extreme risk coverage : Resilience and e fficiency in the global reinsurance market," Working Papers halshs-00800460, HAL.
  5. Hallegatte, Stephane, 2012. "A cost effective solution to reduce disaster losses in developing countries : hydro-meteorological services, early warning, and evacuation," Policy Research Working Paper Series 6058, The World Bank.
  6. Hallegatte, Stephane & Shah, Ankur & Lempert, Robert & Brown, Casey & Gill, Stuart, 2012. "Investment decision making under deep uncertainty -- application to climate change," Policy Research Working Paper Series 6193, The World Bank.

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