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Evaluating sovereign disaster risk finance strategies : a framework

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  • Clarke,Daniel Jonathan
  • Mahul,Olivier
  • Poulter,Richard Andrew
  • Teh,Tse-Ling

Abstract

This paper proposes a framework for ex ante evaluation of sovereign disaster risk finance instruments available to governments for funding disaster losses. The framework can be used by governments to help choose between different financial instruments, or between different combinations of instruments, to achieve appropriate and financially efficient strategies to fund disaster losses, taking into account the risk of disasters, economic conditions, and political constraints. The paper discusses the framework in the context of a hypothetical country, with parameters selected to represent a disaster-prone small island state. The paper shows how a mix of instruments can be chosen to minimize the economic opportunity cost given the underlying disaster risk faced and prevailing economic and financial conditions.

Suggested Citation

  • Clarke,Daniel Jonathan & Mahul,Olivier & Poulter,Richard Andrew & Teh,Tse-Ling, 2016. "Evaluating sovereign disaster risk finance strategies : a framework," Policy Research Working Paper Series 7721, The World Bank.
    • Handle: RePEc:wbk:wbrwps:7721
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    References listed on IDEAS

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    1. Ghesquiere,Francis & Mahul,Olivier, 2010. "Financial protection of the state against natural disasters : a primer," Policy Research Working Paper Series 5429, The World Bank.
    2. Christian Gollier, 2003. "To Insure or Not to Insure?: An Insurance Puzzle," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 28(1), pages 5-24, June.
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    5. Clarke,Daniel Jonathan & Coll-Black,Sarah & Cooney,Naomi Victoria & Edwards,Anna, 2016. "A methodology to assess indicative costs of risk financing strategies for scaling up Ethiopia's productive safety net programme," Policy Research Working Paper Series 7719, The World Bank.
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    9. Gurenko, Eugene & Mahul, Olivier, 2003. "Combining insurance, contingent debt, and self-retention in an optimal corporate risk financing strategy," Policy Research Working Paper Series 3167, The World Bank.
    10. Tito Cordella & Eduardo Levy Yeyati, 2015. "CATalytic insurance: the case of natural disasters," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 31(3-4), pages 330-349.
    11. Clarke, Daniel & Mahul, Olivier, 2011. "Disaster risk financing and contingent credit : a dynamic analysis," Policy Research Working Paper Series 5693, The World Bank.
    12. Clarke,Daniel Jonathan & Wren-Lewis,Liam, 2016. "Solving commitment problems in disaster risk finance," Policy Research Working Paper Series 7720, The World Bank.
    13. De Janvry,Alain F. & del Valle,Alejandro & Sadoulet,Elisabeth Marie L., 2016. "Insuring growth : the impact of disaster funds on economic reconstruction in Mexico," Policy Research Working Paper Series 7714, The World Bank.
    14. Goes, Anne & Skees, Jerry R., 2003. "Financing Natural Disaster Risk Using Charity Contributions And Ex Ante Index Insurance," 2003 Annual meeting, July 27-30, Montreal, Canada 22188, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
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    Cited by:

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    2. Raj, Praveen Vijaya Raj Pushpa & Nagarajan, Bagathsingh & Schoenherr, Tobias & Ramkumar, M., 2023. "A comparative investigation of a seller’s disaster payment period policy," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 171(C).
    3. Adam, Christopher & Bevan, David, 2020. "Tropical cyclones and post-disaster reconstruction of public infrastructure in developing countries," Economic Modelling, Elsevier, vol. 93(C), pages 82-99.
    4. Joshua B. Horton & Penehuro Lefale & David Keith, 2021. "Parametric Insurance for Solar Geoengineering: Insights from the Pacific Catastrophe Risk Assessment and Financing Initiative," Global Policy, London School of Economics and Political Science, vol. 12(S1), pages 97-107, April.
    5. Sandrine Spaeter, 2021. "How to Reconcile Pandemic Business Interruption Risk With Insurance Coverage," Working Papers of BETA 2021-18, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    6. World Bank, 2020. "Catastrophe Insurance Programs for Public Assets," World Bank Publications - Reports 34440, The World Bank Group.
    7. Ionela-Daniela Găitan (Botezatu), 2020. "Comparative Analysis of Post-event Funding Sources," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(2), pages 333-339, December.

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