The political economy of natural disaster damage

Abstract

Economic damage from natural hazards can sometimes be prevented and always mitigated. However, private individuals tend to underinvest in such measures due to problems of collective action, information asymmetry and myopic behavior. Governments, which can in principle correct these market failures, themselves face incentives to underinvest in costly disaster prevention policies and damage mitigation regulations.Yet, disaster damage varies greatly across countries. We argue that rational actors will invest more in trying to prevent and mitigate damage the larger a country's propensity to experience frequent and strong natural hazards. Accordingly, economic loss from an actually occurring disaster will be smaller the larger a country's disaster propensity -holding everything else equal, such as hazard magnitude, the country's total wealth and per capita income. At the same time, damage is not entirely preventable and smaller losses tend to be random. Disaster propensity will therefore have a larger marginal effect on larger predicted damages than on smaller ones. We employ quantile regression analysis in a global sample to test these predictions, focusing on the three disaster types causing the vast majority of damage worldwide: earthquakes, floods and tropical cyclones.3

Climate Impacts, Political Institutions, and Leader Survival: Effects of Droughts and Flooding Precipitation

“…This suggests a straightforward logic of how extreme weather events are connected to climate change adaptation. Those leaders who are more susceptible to suffer politically from flooding and drought should be more willing to invest political capital into adaptation measures that alleviate the consequences of increasingly frequent extreme weather events (Neumayer et al 2014). We also focus on factors that may be moderating this relationship, namely, (a) political regime type, (b) wealth, and (c) the pace of the disaster.…”

“…This provides incentives to improve disaster preparedness. Indeed, countries that experience frequent and strong natural disasters suffer lower economic damage (Neumayer et al 2014), suggesting better preparedness. On the other hand, voters also reward competent handling of crises in the aftermath of natural disasters (Bechtel and Hainmueller 2011).…”

“…Finally, Model 5 replicates Model 4 but instead of using the absolute value of precipitation we use a measure that represents deviation from the country-specific mean value for the period of 1950-2010. Model 5 is especially important in the context of Neumayer et al (2014), who found a negative relationship between disaster propensity and economic losses. The country-specific mean precipitation for the entire period is an accurate measure of the general propensity of the country to experience flooding Competing-risks regression with robust standard errors in parentheses (adjusted for 1495 clusters in leader id) *** p < 0.01, ** p < 0.05, * p < 0.1 events.…”

“…The need to pay for disaster preparedness and impact adaptation raises issues of the socialization of private costs (Neumayer et al 2014), and some societies will have to deal with resettlement pressures (Black et al 2011;McLeman and Smit 2006;Perch-Nielsen et al 2008). Climate change therefore puts a variety of pressures on political systems that are yet little understood.…”

“…In contrast, quickly occurring disasters that produce high numbers of casualties and other costs pass the threshold for political action more easily. For example, Neumayer et al (2014) show that economic losses from strong natural disasters with sudden onset (earthquakes, floods, and tropical cyclones) are smaller for countries with greater disaster propensity as leaders react to political pressures.…”