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

Author

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

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.

Suggested Citation

  • Ghesquiere, Francis & Jamin, Luis & Mahul, Olivier, 2006. "Earthquake vulnerability reduction program in Colombia : a probabilistic cost-benefit analysis," Policy Research Working Paper Series 3939, The World Bank.
    • Handle: RePEc:wbk:wbrwps:3939
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    References listed on IDEAS

    as
    1. Kenneth J. Arrow & Robert C. Lind, 1974. "Uncertainty and the Evaluation of Public Investment Decisions," Palgrave Macmillan Books, in: Chennat Gopalakrishnan (ed.), Classic Papers in Natural Resource Economics, chapter 3, pages 54-75, Palgrave Macmillan.
    2. 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 469-472, May.
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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.
    2. John Douglas & Alireza Azarbakht, 2021. "Cost–benefit analyses to assess the potential of Operational Earthquake Forecasting prior to a mainshock in Europe," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 105(1), pages 293-311, January.
    3. R. Mechler, 2016. "Reviewing estimates of the economic efficiency of disaster risk management: opportunities and limitations of using risk-based cost–benefit analysis," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 81(3), pages 2121-2147, April.

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    More about this item

    Keywords

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