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

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  • 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.

Suggested Citation

  • 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.
  • Handle: RePEc:wbk:wbrwps:5617
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    References listed on IDEAS

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    Cited by:

    1. Venkatachalam ANBUMOZHI & Ponciano S. INTAL, Jr., 2015. "Can Thinking Green and Sustainability Be an Economic Opportunity for ASEAN?," Working Papers DP-2015-66, Economic Research Institute for ASEAN and East Asia (ERIA).
    2. 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.
    3. 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.
    4. Trond Husby & Henri L.F. de Groot & Marjan W. Hofkes & Martijn I. Dröes, 2013. "The Great North Sea Flood of 1953, The Deltaworks and the spatial distribution of people," ERSA conference papers ersa13p909, European Regional Science Association.
    5. Stéphane Hallegatte, 2012. "An exploration of the link between development, economic growth, and natural risk," Post-Print hal-00802047, HAL.
    6. Sabine Lemoyne de Forges & Ruben Bibas & Stéphane Hallegatte, 2001. "A dynamic model of extreme risk coverage : Resilience and e fficiency in the global reinsurance market," CIRED Working Papers halshs-00800460, HAL.
    7. Hallegatte, Stephane & Heal, Geoffrey & Fay, Marianne & Treguer, David, 2011. "From growth to green growth -- a framework," Policy Research Working Paper Series 5872, The World Bank.
    8. Samuel Fankhauser & Thomas K.J. McDermott, 2013. "Understanding the adaptation deficit: why are poor countries more vulnerable to climate events than rich countries?," GRI Working Papers 134, Grantham Research Institute on Climate Change and the Environment.

    More about this item

    Keywords

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

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