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Natural disasters cause considerable economic damage. While developed countries usually are able to cope with the impacts of natural hazards, developing countries are faced with severe consequences for their resources. In order to prevent long-term macroeconomic repercussions, governments need a comprehensive disaster risk management strategy. Stefan Hochrainer develops a catastrophe risk management model. It illustrates which trade-offs and choices a country must make in managing economic risks due to natural disasters. Budgetary resources are allocated to pre-disaster risk management strategies to reduce the probability of financing gaps. The framework and model approach allows cross country comparisons as well as the assessment of financial vulnerability, macroeconomic risk, and risk management strategies. Three case studies demonstrate its flexibility and coherent approach.

Natural disasters --- Risk management. --- Economic aspects. --- Insurance --- Management --- Natural calamities --- Disasters --- Finance. --- Operations research. --- Finance, general. --- Operations Research/Decision Theory. --- Operational analysis --- Operational research --- Industrial engineering --- Management science --- Research --- System theory --- Funding --- Funds --- Economics --- Currency question --- Decision making. --- Deciding --- Decision (Psychology) --- Decision analysis --- Decision processes --- Making decisions --- Management decisions --- Choice (Psychology) --- Problem solving --- Decision making

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There is an ongoing debate on whether disasters cause significant macroeconomic impacts and are truly a potential impediment to economic development. This paper aims to assess whether and by what mechanisms disasters have the potential to cause significant GDP impacts. The analysis first studies the counterfactual versus the observed gross domestic product. Second, the analysis assesses disaster impacts as a function of hazard, exposure of assets, and, importantly, vulnerability. In a medium-term analysis (up to 5 years after the disaster event), comparing counterfactual with observed gross domestic product, the authors find that natural disasters on average can lead to negative consequences. Although the negative effects may be small, they can become more pronounced depending mainly on the size of the shock. Furthermore, the authors test a large number of vulnerability predictors and find that greater aid and inflows of remittances reduce adverse macroeconomic consequences, and that direct losses appear most critical.

Conflict and Development --- Currencies and Exchange Rates --- Debt Markets --- Disaster --- Disaster event --- Disaster events --- Disaster Management --- Disaster reduction --- Disaster risk --- Disaster risk reduction --- Drought --- Droughts --- Earthquake --- Earthquakes --- Economic Theory and Research --- Emerging Markets --- Environment --- Finance and Financial Sector Development --- Flood --- Floods --- Hazard Risk Management --- Hurricane --- Macroeconomics and Economic Growth --- Natural disaster --- Natural disaster reduction --- Natural Disasters --- Natural disasters --- Natural hazards --- Private Sector Development --- Reconstruction --- Storm --- Storms --- Urban Development

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Operational research. Game theory --- speltheorie --- operationeel onderzoek

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National governments are key actors in managing the impacts of extreme weather events, yet many highly exposed developing countries - faced with exhausted tax bases, high levels of indebtedness, and limited donor assistance - have been unable to raise sufficient and timely capital to replace or repair damaged infrastructure and restore livelihoods after major disasters. Such financial vulnerability hampers development and exacerbates poverty. Based on the record of the past 30 years, this paper finds many developing countries, in particular small island states, to be highly financially vulnerable, and experiencing a resource gap (net disaster losses exceed all available financing sources) for events that occur with a probability of 2 percent or higher. This has three main implications. First, efforts to reduce risk need to be ramped-up to lessen the serious human and financial burdens. Second, contrary to the well-known Arrow-Lind theorem, there is a case for country risk aversion implying that disaster risks faced by some governments cannot be absorbed without major difficulty. Risk aversion entails the ex ante financing of losses and relief expenditure through calamity funds, regional insurance pools, or contingent credit arrangements. Third, financially vulnerable (and generally poor) countries are unlikely to be able to implement pre-disaster risk financing instruments themselves, and thus require technical and financial assistance from the donor community. The cost estimates of financial vulnerability - based on today's climate - inform the design of "climate insurance funds" to absorb high levels of sovereign risk and are found to be in the lower billions of dollars annually, which represents a baseline for the incremental costs arising from future climate change.

Banks & Banking Reform --- Climate change --- Climate Change Economics --- Damages --- Debt Markets --- Disaster --- Disaster aid --- Disaster risk --- Disaster risks --- Disasters --- Drought --- Extreme event --- Extreme events --- Extreme weather --- Extreme weather events --- Famine --- Farmers --- Finance and Financial Sector Development --- Flooding --- Hazard Risk Management --- Insurance --- Insurance & Risk Mitigation --- Insurance contract --- Macroeconomics and Economic Growth --- Natural disaster --- Natural hazards --- Relief --- Urban Development