Are Losses from Natural Disasters More Than Just Asset Losses?

Stephane Hallegatte and Adrien Vogt-Schilb ()
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Adrien Vogt-Schilb: Inter-American Development Bank

Chapter Chapter 2 in Advances in Spatial and Economic Modeling of Disaster Impacts, 2019, pp 15-42 from Springer

Abstract: Abstract The welfare impact of a natural disaster depends on its effect on consumption, not only on the direct asset losses and human losses that are usually estimated and reported after disasters. This chapter proposes a framework to assess disaster-related consumption losses, starting from an estimate of the asset losses, and leading to the following findings. First, output losses after a disaster destroys part of the capital stock are better estimated by using the average—not the marginal—productivity of capital. A model that describes capital in the economy as a single homogeneous stock would systematically underestimate disaster output losses, compared with a model that tracks capital in different sectors with limited reallocation options. Second, the net present value of disaster-caused consumption losses decreases when reconstruction is accelerated. With standard parameters, discounted consumption losses are only 10% larger than asset losses if reconstruction is completed in 1 year, compared with 50% if reconstruction takes 10 years. Third, for disasters of similar magnitude, consumption losses are expected to be lower where the productivity of capital is higher, such as in capital-scarce developing countries. This mechanism may partly compensate for the many other factors that make poor countries and poor people more vulnerable to disasters.

Keywords: Natural disasters; Economic losses; Economic analysis; Capital (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/978-3-030-16237-5_2

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