An Economic Analysis of Climate Adaptations to Hurricane Risk in St. Lucia

Chieh Ou-Yang, Howard Kunreuther and Erwann Michel-Kerjan
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Chieh Ou-Yang: Economics and Finance, City University of Hong Kong, 83 Tat Chee Avenue, Kowloon Tong, Kowloon, Hong Kong.
Howard Kunreuther: The Wharton School, University of Pennsylvania, 3730 Walnut Street, Jon M. Huntsman Hall, Philadelphia, PA 19104, U.S.A.

The Geneva Papers on Risk and Insurance - Issues and Practice, 2013, vol. 38, issue 3, 546 pages

Abstract: We introduce a catastrophic risk model that captures the cumulative impact of climate change on future expected losses from hurricane risk. The annual growth rates of expected losses due to change in climate patterns (or “climate change factor”) are estimated based upon historical storm activities in the Atlantic Basin and catastrophe modelling. The percentiles of the climate change factor are then used to measure expected hurricane losses in the Caribbean Island of St. Lucia. We also undertake benefit-cost analyses on four adaptation measures for homes in St. Lucia and determine when those are cost-effective for different time horizons and discount rates with and without climate change. Adaptation makes an enormous difference and can offset additional losses even with a high climate change factor by making houses much more resilient. Enforcing these protection measures will be critical.

Date: 2013
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