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Risk Aversion, Inequality and Economic Evaluation of Flood Damages: A Case Study in Ecuador

Vito Frontuto (), Silvana Dalmazzone (), Francesco Salcuni () and Alessandro Pezzoli ()
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Vito Frontuto: Dipartimento di Economia e Statistica, Università di Torino, 10153 Torino, Italy
Silvana Dalmazzone: Dipartimento di Economia e Statistica, Università di Torino, 10153 Torino, Italy
Francesco Salcuni: Dipartimento di Economia e Statistica, Università di Torino, 10153 Torino, Italy
Alessandro Pezzoli: Dipartimento Interateneo di Scienze, Progetto e Politiche del Territorio, Università di Torino e Politecnico di Torino, 10125 Torino, Italy

Sustainability, 2020, vol. 12, issue 23, 1-17

Abstract: While floods and other natural disasters affect hundreds of millions of people globally every year, a shared methodological approach on which to ground impact valuations is still missing. Standard Cost-Benefit Analyses typically evaluate damages by summing individuals’ monetary equivalents, without taking into account income distribution and risk aversion. We propose an empirical application of alternative valuation approaches developed in recent literature, including equity weights and risk premium multipliers, to a case study in Ecuador. The results show that accounting for inequality may substantially alter the conclusions of a standard vulnerability approach, with important consequences for policy choices pertaining damage compensation and prioritization of intervention areas.

Keywords: natural disasters; flooding; flood vulnerability; inequality; risk premium; expected annual damages; certainty equivalent annual damages; equity weight expected annual damages; equity weight certainty equivalent annual damage (search for similar items in EconPapers)
JEL-codes: Q Q0 Q2 Q3 Q5 Q56 O13 (search for similar items in EconPapers)
Date: 2020
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