IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/5232.html
   My bibliography  Save this paper

Assessing the financial vulnerability to climate-related natural hazards

Author

Listed:
  • Mechler, Reinhard
  • Hochrainer, Stefan
  • Pflug, Georg
  • Lotsch, Alexander
  • Williges, Keith

Abstract

National governments are key actors in managing the impacts of extreme weather events, yet many highly exposed developing countries -- faced with exhausted tax bases, high levels of indebtedness, and limited donor assistance -- have been unable to raise sufficient and timely capital to replace or repair damaged infrastructure and restore livelihoods after major disasters. Such financial vulnerability hampers development and exacerbates poverty. Based on the record of the past 30 years, this paper finds many developing countries, in particular small island states, to be highly financially vulnerable, and experiencing a resource gap (net disaster losses exceed all available financing sources) for events that occur with a probability of 2 percent or higher. This has three main implications. First, efforts to reduce risk need to be ramped-up to lessen the serious human and financial burdens. Second, contrary to the well-known Arrow-Lind theorem, there is a case for country risk aversion implying that disaster risks faced by some governments cannot be absorbed without major difficulty. Risk aversion entails the ex ante financing of losses and relief expenditure through calamity funds, regional insurance pools, or contingent credit arrangements. Third, financially vulnerable (and generally poor) countries are unlikely to be able to implement pre-disaster risk financing instruments themselves, and thus require technical and financial assistance from the donor community. The cost estimates of financial vulnerability -- based on today's climate -- inform the design of"climate insurance funds"to absorb high levels of sovereign risk and are found to be in the lower billions of dollars annually, which represents a baseline for the incremental costs arising from future climate change.

Suggested Citation

  • Mechler, Reinhard & Hochrainer, Stefan & Pflug, Georg & Lotsch, Alexander & Williges, Keith, 2010. "Assessing the financial vulnerability to climate-related natural hazards," Policy Research Working Paper Series 5232, The World Bank.
  • Handle: RePEc:wbk:wbrwps:5232
    as

    Download full text from publisher

    File URL: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2010/03/03/000158349_20100303092429/Rendered/PDF/WPS5232.pdf
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Anonymous, 2016. "Notes," Farm and Business - The Journal of The Caribbean Agro-Economic Society, Caribbean Agro-Economic Society, vol. 8(1), July.
    2. Tago, D. & Pradel, J. & Percedo Abreu, M. I. & Frias Lepoureau, M. T. & Gongora, V. & Lancelot, R. & Lefran├žois, T. & Surujbally, N. & Lazarus, C. & Morales, P. & Vokaty, S., 2016. "Towards A Regional Approach for Animal Health Services Provision and Disaster Risk Reduction: The Economics of the Caribvet Network," 2015 West Indies Agricultural Economics Conference, August 10-14 , 2015, St. Croix, U.S. Virgin Islands 243180, Caribbean Agro-Economic Society.
    3. Asian Development Bank Institute, 2017. "Making Money Work: Financing a Sustainable Future in Asia and the Pacific," Working Papers id:11892, eSocialSciences.

    More about this item

    Keywords

    Hazard Risk Management; Debt Markets; Insurance&Risk Mitigation; Banks&Banking Reform; Climate Change Economics;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:5232. 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). General contact details of provider: http://edirc.repec.org/data/dvewbus.html .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.