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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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    1. Eric Neumayer & Fabian Barthel, 2010. "Normalizing economic loss from natural disasters: a global analysis," GRI Working Papers 31, Grantham Research Institute on Climate Change and the Environment.
    2. Christopher W. Landsea, 2005. "Hurricanes and global warming," Nature, Nature, vol. 438(7071), pages 11-12, December.
    3. William D. Nordhaus, 2006. "The Economics of Hurricanes in the United States," NBER Working Papers 12813, National Bureau of Economic Research, Inc.
    4. Stéphane Hallegatte, 2008. "An adaptive regional input-output model and its application to the assessment of the economic cost of Katrina," Post-Print hal-00716550, HAL.
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    Cited by:

    1. Heidi Tuhkanen & Michael Boyland & Guoyi Han & Anjalee Patel & Karlee Johnson & Arno Rosemarin & Ladylyn Lim Mangada, 2018. "A Typology Framework for Trade-Offs in Development and Disaster Risk Reduction: A Case Study of Typhoon Haiyan Recovery in Tacloban, Philippines," Sustainability, MDPI, vol. 10(6), pages 1-19, June.
    2. Schumacher, Ingmar & Strobl, Eric, 2011. "Economic development and losses due to natural disasters: The role of hazard exposure," Ecological Economics, Elsevier, vol. 72(C), pages 97-105.
    3. Małgorzata Dudzińska & Barbara Prus & Radosław Cellmer & Stanisław Bacior & Katarzyna Kocur-Bera & Anna Klimach & Agnieszka Trystuła, 2020. "The Impact of Flood Risk on the Activity of the Residential Land Market in a Polish Cultural Heritage Town," Sustainability, MDPI, vol. 12(23), pages 1-18, December.
    4. Stéphane Hallegatte, 2012. "An exploration of the link between development, economic growth, and natural risk," Post-Print hal-00802047, HAL.
    5. 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.
    6. 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.
    7. 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.
    8. Adriana Keating & Karen Campbell & Reinhard Mechler & Piotr Magnuszewski & Junko Mochizuki & Wei Liu & Michael Szoenyi & Colin McQuistan, 2017. "Disaster resilience: what it is and how it can engender a meaningful change in development policy," Development Policy Review, Overseas Development Institute, vol. 35(1), pages 65-91, January.
    9. 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.
    10. 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.
    11. Yang Zhou & Ning Li & Wenxiang Wu & Haolong Liu & Li Wang & Guangxu Liu & Jidong Wu, 2014. "Socioeconomic development and the impact of natural disasters: some empirical evidences from China," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 74(2), pages 541-554, November.
    12. Laura Devitt & Jeffrey Neal & Gemma Coxon & James Savage & Thorsten Wagener, 2023. "Flood hazard potential reveals global floodplain settlement patterns," Nature Communications, Nature, vol. 14(1), pages 1-11, December.
    13. Stephane Hallegatte, 2017. "A Normative Exploration of the Link Between Development, Economic Growth, and Natural Risk," Economics of Disasters and Climate Change, Springer, vol. 1(1), pages 5-31, June.
    14. Maruyama Rentschler,Jun Erik & Avner,Paolo & Marconcini,Mattia & Su,Rui & Strano,Emanuele & Bernard,Louise Alice Karine & Riom,Capucine Anne Veronique & Hallegatte,Stephane, 2022. "Rapid Urban Growth in Flood Zones : Global Evidence since 1985," Policy Research Working Paper Series 10014, The World Bank.
    15. Paul Watkiss & Federica Cimato, 2016. "The economics of adaptation and climate-resilient development: lessons from projects for key adaptation challenges," GRI Working Papers 235, Grantham Research Institute on Climate Change and the Environment.
    16. 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).
    17. 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.
    18. Selene Perazzini, 2020. "Public-Private Partnership in the Management of Natural Disasters: A Review," Papers 2006.05845, arXiv.org.
    19. Xiaodong Zhu & Zijing Jin & Shunsuke Managi & XiRong Xun, 2021. "How meteorological disasters affect the labor market? The moderating effect of government emergency response policy," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 107(3), pages 2625-2640, July.
    20. Hans Visser & Arthur Petersen & Willem Ligtvoet, 2014. "On the relation between weather-related disaster impacts, vulnerability and climate change," Climatic Change, Springer, vol. 125(3), pages 461-477, August.
    21. Trond Husby & Henri L. F. de Groot & Marjan W. Hofkes & Tatiana Filatova, 2018. "Flood protection and endogenous sorting of households: the role of credit constraints," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 23(2), pages 147-168, February.

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    Keywords

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