Investing in disaster risk management in an uncertain climate

Thomas K.J. McDermott

No 7631, Policy Research Working Paper Series from The World Bank

Abstract: Climate change will exacerbate the challenges associated with environmental conditions, especially weather variability and extremes, in developing countries. These challenges play important, if as yet poorly understood roles in the development prospects of affected regions. As such, climate change reinforces the development case for investment in disaster risk management. Uncertainty about how climate change will affect particular locations makes optimal investment planning more difficult. In particular, the inability to derive meaningful probabilities from climate models limits the usefulness of standard project evaluation techniques, such as cost-benefit analysis. Although the deep uncertainty associated with climate change complicates disaster risk management investment decisions, the analysis presented here shows that these considerations are only relevant for a relatively limited set of investment circumstances. The paper offers a simple decision framework that enables policy makers to identify the particular circumstances under which uncertainty about future climate change becomes critical for disaster risk management investment decisions. Accounting for climate uncertainty is likely to shift the optimal balance of disaster risk management strategies toward more flexible, low-regret type interventions, especially those that seek to promote"development first"or"risk-coping"objectives. Such investments are likely to confer additional development dividends, regardless of the climate future that materializes in a given location. Importantly, the analysis here also demonstrates that climate uncertainty does not necessarily motivate a"wait and see"approach. Instead, where opportunities exist to avail of adaptation co-benefits, climate uncertainty provides additional motivation for early investment in disaster risk management initiatives.

Keywords: Industrial Economics; Science of Climate Change; Economic Conditions and Volatility; Climate Change and Health; Climate Change and Environment; Inequality; Economic Theory&Research; Economic Growth (search for similar items in EconPapers)
Date: 2016-04-12
New Economics Papers: this item is included in nep-env, nep-ppm, nep-res, nep-rmg and nep-upt
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