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Dealing with Increased Risk of Natural Disasters; Challenges and Options


  • Michael Keen
  • Paul K. Freeman
  • Muthukumara Mani


Natural disaster risk is emerging as an increasingly important constraint on economic development and poverty reduction. This paper first sets out the key stylized facts in the area-that the costs of disaster have been increasing, seem set to continue to increase, and bear especially heavily on the poorest. It then reviews the key economic issues at stake, focusing in particular on the actual and prospective roles of, and interaction between, market instruments and public interventions in dealing with disaster risk. Key sources of market failure include the difficulty of risk spreading and, perhaps even more fundamental, the Samaritan's dilemma: the underinvestment in protective measures associated with the rational expectation that others will provide support if disaster occurs. Innovations addressing each of these are discussed.

Suggested Citation

  • Michael Keen & Paul K. Freeman & Muthukumara Mani, 2003. "Dealing with Increased Risk of Natural Disasters; Challenges and Options," IMF Working Papers 03/197, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:03/197

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    References listed on IDEAS

    1. Bruce, Neil & Waldman, Michael, 1991. "Transfers in Kind: Why They Can Be Efficient and Nonpaternalistic," American Economic Review, American Economic Association, vol. 81(5), pages 1345-1351, December.
    2. Eduardo Borensztein & Paolo Mauro, 2002. "Reviving the Case for GDP-Indexed Bonds," IMF Policy Discussion Papers 02/10, International Monetary Fund.
    3. John D. Pollner, 2001. "Managing Catastrophic Disaster Risks Using Alternative Risk financing and Pooled Insurance Structures," World Bank Publications, The World Bank, number 13961, June.
    4. Coate, Stephen, 1995. "Altruism, the Samaritan's Dilemma, and Government Transfer Policy," American Economic Review, American Economic Association, vol. 85(1), pages 46-57, March.
    5. James Daniel, 2001. "Hedging Government Oil Price Risk," IMF Working Papers 01/185, International Monetary Fund.
    6. Alcira Kreimer & Margaret Arnold, 2000. "Managing Disaster Risk in Emerging Economies," World Bank Publications, The World Bank, number 15196, June.
    7. Albala-Bertrand, J. M., 1993. "Political Economy of Large Natural Disasters: With Special Reference to Developing Countries," OUP Catalogue, Oxford University Press, number 9780198287650.
    8. 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 364-378, June.
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