Advanced Search
MyIDEAS: Login to save this paper or follow this series

An exploration of the link between development, economic growth, and natural risk

Contents:

Author Info

  • Hallegatte, Stephane

Abstract

This paper investigates the link between development, economic growth, and the economic losses from natural disasters in a general analytical framework, with an illustration on hurricane flood risks in New Orleans. It concludes that, where capital accumulates through increased density of capital at risk in a given area, (i) the probability of disaster occurrence decreases with income; (ii) capital at risk – and thus economic losses in case of disaster -- increases faster than economic growth; (iii) increasing risk-taking reinforces economic growth. Economic growth and improved protection transfer risks from frequent low-intensity events to rarer high-impact events. In this context, average annual losses from disasters grow with income, and they grow faster than income at low levels of development and slower than income at high levels of development. These findings are robust to a broad range of modeling choices and parameter values, to the inclusion of risk aversion, and to variations in the decision-making framework (including the introduction of prospect theory's decision weights, biases in risk perception and myopic expectations). They show that risk-taking is both a driver and a consequence of economic development, that risk taking should not be indiscriminately suppressed, and that the world is very likely to experience fewer but more costly disasters in the future.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2013/03/18/000158349_20130318094945/Rendered/PDF/wps6216.pdf
Download Restriction: no

Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6216.

as in new window
Length:
Date of creation: 01 Oct 2012
Date of revision:
Handle: RePEc:wbk:wbrwps:6216

Contact details of provider:
Postal: 1818 H Street, N.W., Washington, DC 20433
Phone: (202) 477-1234
Email:
Web page: http://www.worldbank.org/
More information through EDIRC

Related research

Keywords: Economic Theory&Research; Hazard Risk Management; Banks&Banking Reform; Insurance&Risk Mitigation; Labor Policies;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. 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.
  2. Henriet, Fanny & Hallegatte, Stéphane & Tabourier, Lionel, 2012. "Firm-network characteristics and economic robustness to natural disasters," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 36(1), pages 150-167.
  3. Lewis, Tracy & Nickerson, David, 1989. "Self-insurance against natural disasters," Journal of Environmental Economics and Management, Elsevier, vol. 16(3), pages 209-223, May.
  4. Kaplow, Louis, 1991. " Incentives and Government Relief for Risk," Journal of Risk and Uncertainty, Springer, Springer, vol. 4(2), pages 167-75, April.
  5. William D. Nordhaus, 2010. "The Economics Of Hurricanes And Implications Of Global Warming," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., World Scientific Publishing Co. Pte. Ltd., vol. 1(01), pages 1-20.
  6. Fields, Gary S., 1975. "Rural-urban migration, urban unemployment and underemployment, and job-search activity in LDCs," Journal of Development Economics, Elsevier, Elsevier, vol. 2(2), pages 165-187, June.
  7. Raymond Burby & Arthur Nelson & Dennis Parker & John Handmer, 2001. "Urban Containment Policy and Exposure to Natural Hazards: Is There a Connection?," Journal of Environmental Planning and Management, Taylor & Francis Journals, Taylor & Francis Journals, vol. 44(4), pages 475-490.
  8. Hogarth, Robin M & Kunreuther, Howard, 1995. "Decision Making under Ignorance: Arguing with Yourself," Journal of Risk and Uncertainty, Springer, Springer, vol. 10(1), pages 15-36, January.
  9. Thomas Fomby & Yuki Ikeda & Norman V. Loayza, 2013. "The Growth Aftermath Of Natural Disasters," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 28(3), pages 412-434, 04.
  10. repec:reg:rpubli:282 is not listed on IDEAS
  11. Hallegatte, Stephane & Hourcade, Jean-Charles & Dumas, Patrice, 2007. "Why economic dynamics matter in assessing climate change damages: Illustration on extreme events," Ecological Economics, Elsevier, Elsevier, vol. 62(2), pages 330-340, April.
  12. Stéphane Hallegatte & Valentin Przyluski, 2010. "The Economics of Natural Disasters," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, Ifo Institute for Economic Research at the University of Munich, vol. 11(2), pages 14-24, 07.
  13. 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.
  14. Ciccone, Antonio, 2002. "Agglomeration effects in Europe," European Economic Review, Elsevier, Elsevier, vol. 46(2), pages 213-227, February.
  15. Arrow, Kenneth J & Lind, Robert C, 1970. "Uncertainty and the Evaluation of Public Investment Decisions," American Economic Review, American Economic Association, American Economic Association, vol. 60(3), pages 364-78, June.
  16. Schumacher, Ingmar & Strobl, Eric, 2011. "Economic development and losses due to natural disasters: The role of hazard exposure," Ecological Economics, Elsevier, Elsevier, vol. 72(C), pages 97-105.
  17. 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, Springer, vol. 104(1), pages 139-167, January.
  18. W. Kip Viscusi & Joseph E. Aldy, 2003. "The Value of a Statistical Life: A Critical Review of Market Estimates throughout the World," NBER Working Papers 9487, National Bureau of Economic Research, Inc.
  19. Laffont, Jean-Jacques, 1995. "Regulation, moral hazard and insurance of environmental risks," Journal of Public Economics, Elsevier, Elsevier, vol. 58(3), pages 319-336, November.
  20. Toya, Hideki & Skidmore, Mark, 2007. "Economic development and the impacts of natural disasters," Economics Letters, Elsevier, Elsevier, vol. 94(1), pages 20-25, January.
  21. Hallegatte, Stephane, 2011. "How economic growth and rational decisions can make disaster losses grow faster than wealth," Policy Research Working Paper Series 5617, The World Bank.
  22. Lall, Somik V. & Deichmann, Uwe, 2009. "Density and disasters: economics of urban hazard risk," Policy Research Working Paper Series 5161, The World Bank.
  23. Joanne Linnerooth-Bayer & Koko Warner & Christoph Bals & Peter H�ppe & Ian Burton & Thomas Loster & Armin Haas, 2009. "Insurance, Developing Countries and Climate Change," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan, vol. 34(3), pages 381-400, July.
  24. Susan Hanson & Robert Nicholls & N. Ranger & S. Hallegatte & J. Corfee-Morlot & C. Herweijer & J. Chateau, 2011. "A global ranking of port cities with high exposure to climate extremes," Climatic Change, Springer, Springer, vol. 104(1), pages 89-111, January.
  25. repec:reg:wpaper:282 is not listed on IDEAS
  26. Loayza, Norman & Olaberria, Eduardo & Rigolini, Jamele & Christiaensen, Luc, 2009. "Natural disasters and growth - going beyond the averages," Policy Research Working Paper Series 4980, The World Bank.
  27. Kellenberg, Derek K. & Mobarak, Ahmed Mushfiq, 2008. "Does rising income increase or decrease damage risk from natural disasters?," Journal of Urban Economics, Elsevier, vol. 63(3), pages 788-802, May.
  28. Silvio Schmidt & Claudia Kemfert & Peter Höppe, 2008. "Tropical Cyclone Losses in the USA and the Impact of Climate Change: A Trend Analysis Based on a New Dataset," Discussion Papers of DIW Berlin 802, DIW Berlin, German Institute for Economic Research.
  29. Matthew E. Kahn, 2005. "The Death Toll from Natural Disasters: The Role of Income, Geography, and Institutions," The Review of Economics and Statistics, MIT Press, vol. 87(2), pages 271-284, May.
  30. Colin F. Camerer & Howard Kunreuther, 1989. "Decision processes for low probability events: Policy implications," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 8(4), pages 565-592.
Full references (including those not matched with items on IDEAS)

Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Risk-taking and economic growth in natural disaster zones
    by Economic Logician in Economic Logic on 2012-11-15 15:28:00
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Noy, Ilan & Karim, Azreen, 2013. "Poverty, inequality and natural disasters – A survey," Working Paper Series, Victoria University of Wellington, School of Economics and Finance 2974, Victoria University of Wellington, School of Economics and Finance.
  2. Lempert, Robert & Kalra, Nidhi & Peyraud, Suzanne & Mao, Zhimin & Tan, Sinh Bach & Cira, Dean & Lotsch, Alexander, 2013. "Ensuring robust flood risk management in Ho Chi Minh city," Policy Research Working Paper Series 6465, The World Bank.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:6216. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.