Disasters: what is the cost ?

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.

 

Stephane Hallegatte, Researcher, Environmental Economics & Climate Sciences from World Bank on Vimeo.

Stephane Hallegatte, Researcher, Environmental Economics & Climate Sciences from World Bank on Vimeo.