The economics of natural disasters

A new report from the World Bank asks how much suffering is due to natural hazards, and how much due to human decisions.

Apurva Sanghi has led a Dream Team to issue an important new World Bank Report.

"Earthquakes, droughts, floods, and storms are natural hazards, but unnatural disasters are the deaths and damages that result from human acts of omission and commission. Every disaster is unique, but each exposes actions—by individuals and governments at different levels—that, had they been different, would have resulted in fewer deaths and less damage. Prevention is possible, and this book examines what it takes to do this cost-effectively.

Natural Hazards, UnNatural Disasters looks at disasters primarily through an economic lens. Economists emphasize self-interest to explain how people choose the amount of prevention, insurance, and coping. But lenses can distort as well as sharpen images, so the book also draws from other disciplines: psychology to examine how people may misperceive risks, political science to understand voting patterns, and nutrition science to see how stunting in children after a disaster impairs cognitive abilities and productivity as adults much later. It asks not only the tough questions, but some unexpected ones as well: Should all disasters be prevented? Do disasters increase or decrease conflict? Does foreign aid help or hinder prevention? The answers are not obvious. Peering into the future, it finds that growing cities and a changing climate will shape the disaster prevention landscape. While it is cautious about the future, it is not alarmist."

A free copy is available here.

There is an obvious link to climate change adaptation here. While I have only skimmed the book, I can see that there are some fantastic case studies of developing countries.

An issue that I discuss in Climatopolis is relevant here. Don't forget your law of 72. If a developing nation's per-capita income grows by 6% a year, its per-capita income will double in 12 years (12*6=72). So what? As people grow richer, they have a greater capacity to take a range of actions that help to protect them against risk from natural disaster. They eat a better diet, live in better housing, have better governments that provide local public services that protect them, they have access to formal insurance markets to offer transfers in those scenarios where a disaster causes significant damage. I believe that a combination of migration (in response to climate change science models) and growing income (due to capitalist success) will help millions of people in the developing world cope with climate change induced natural disaster risk. There are many pessimists who disagree. As you can tell, this is an important debate to have. Are the poor in the developing world, passive victims of coming climate change or are they pro-active forward looking households seeking coping strategies? My bet is on the 2nd one.

Returning to Apurva's study, this is a really nice book about a topic that has interested me for years. My 2005 Review of Economics and Statistics paper, titled the Death Toll from Natural Disasters has generated lots of interest over the years. I would love to see empirical nerds having access to better micro data to study how individuals (rather than nations) are affected by such shocks.

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