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Impact of behavioral issues on green growth policies and weather-related disaster reduction in developing countries

  • Kunreuther, Howard
  • Michel-Kerjan, Erwann

This paper focuses on how developing countries can change the way they prepare for disasters so they are better equipped to sustain economic growth. It discusses the importance of considering the goals of key decision makers and the need to understand the perceptions, systematics biases, and heuristics used by the relevant interested parties (the affected public, private and public sector organizations, and nongovernmental organizations) in choosing between alternatives. The paper highlights the importance of undertaking benefit-cost analysis to evaluate disaster risk reduction measures, recognizing that decision makers might not make meaningful use of this policy tool given their behavioral biases and simplified heuristics. To address these issues, the authors propose green growth strategies that involve multi-year contracts coupled with short-term incentives that have a chance of being implemented. The strategies focus on the role of multi-year micro-insurance, long-term loans, and multi-year catastrophe bonds that reflect the institutional arrangements in the developing country. The paper illustrates this proposal in the case of farmers'agricultural practices and investment decisions that reduce losses to property from catastrophic disasters such as drought.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6241.

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Date of creation: 01 Oct 2012
Date of revision:
Handle: RePEc:wbk:wbrwps:6241
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  1. Howard Kunreuther & Erwann Michel-Kerjan, 2004. "Policy Watch: Challenges for Terrorism Risk Insurance in the United States," NBER Working Papers 10870, National Bureau of Economic Research, Inc.
  2. Shawn Cole & Xavier Giné & Jeremy Tobacman & Petia Topalova & Robert M. Townsend & James Vickery, 2009. "Barriers to household risk management: evidence from India," Staff Reports 373, Federal Reserve Bank of New York.
  3. Hallegatte, Stéphane & Dumas, Patrice, 2009. "Can natural disasters have positive consequences? Investigating the role of embodied technical change," Ecological Economics, Elsevier, vol. 68(3), pages 777-786, January.
  4. Erwann Michel-Kerjan & Frederic Morlaye, 2008. "Extreme Events, Global Warming, and Insurance-Linked Securities: How to Trigger the “Tipping Point”," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan, vol. 33(1), pages 153-176, January.
  5. repec:oup:qjecon:v:107:y:1992:i:2:p:573-97 is not listed on IDEAS
  6. Hogarth, Robin M & Kunreuther, Howard, 1995. "Decision Making under Ignorance: Arguing with Yourself," Journal of Risk and Uncertainty, Springer, vol. 10(1), pages 15-36, January.
  7. Erwann Michel-Kerjan & Ivan Zelenko & Victor Cardenas & Daniel Turgel, 2011. "Catastrophe Financing for Governments: Learning from the 2009-2012 MultiCat Program in Mexico," OECD Working Papers on Finance, Insurance and Private Pensions 9, OECD Publishing.
  8. Hallegatte, Stéphane & Ghil, Michael, 2008. "Natural disasters impacting a macroeconomic model with endogenous dynamics," Ecological Economics, Elsevier, vol. 68(1-2), pages 582-592, December.
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