Buried under the most snow since records have been kept, as we are right now in Washington, the mind turns naturally to the effects of extreme weather events. Clearly the impacts for those of us with solid housing and uninterrupted WiFi access are minimal compared with the impacts of extreme weather for most people in the world. But even here we can see a combination of effects -- the costs of closing offices or of running through the whole winter's supply of firewood in one week, at the same time as the economic uptick for those who repair household boilers, restore downed power lines or dig people's cars out of the snow or shovel their sidewalks for a fee. Since climate change is expected to increase the frequency and severity of extreme weather events, figuring out the net cost of natural disasters is an important topic. And figuring out sensible ways to reduce those costs is also going to be increasingly important.
At the World Bank last week, we had an interesting seminar from Stéphane Hallegate from the French International Centre for Research on Environment and Development and the National Meteorology School that shed light on some of these issues. Stéphane has modelled the impacts of a number of natural disasters looking at both the direct costs of the disaster (how much does it cost to rebuild structures that were destroyed?) and the indirect costs (what is the cost of a business being closed for several months net of any local economic benefits that may occur as reconstruction starts).
There is considerable debate about how to calculate these costs. Hallegate's model suggests something that makes intuitive sense--with small disasters, the benefits can outweigh the costs because the rebuilt structures are better than those that were destroyed and the cost of the destruction was lower, whereas with larger disasters the net effects are negative. Most variation in costs and benefits seemed to hinge on the construction sector. If it is efficient, the time lag between the disaster and the econstruction is reduced, thus lowering the direct costs and reducing the increase in prices that often occurs from a huge surge in demand for construction services. Hallegate suggested that flexible ways to plan licencing systems for construction crews are among the many flexible cost-effective mechanisms to reduce the impacts of natural disasters.