Reviewing estimates of the economic efficiency of disaster risk management: opportunities and limitations of using risk-based cost–benefit analysis

There is a lot of rhetoric suggesting that disaster risk reduction (DRR) pays, yet surprisingly little in the way of hard facts. This review paper examines the evidence regarding the economic efficiency of DRM based on CBA. Specifically, it addresses the following questions: What can be said about current and best practice regarding CBA for DRR including limitations and alternatives? And, what, if at all, can be said in terms of quantitative insight for informing policy and practice? The review compares the documented evidence on the net benefits over a range of disaster management interventions, such as risk reduction, preparedness and risk financing. The review also critically discusses the applicability of cost–benefit analysis as well as other economic decision-supporting tools for assessing the efficiency of certain DRM interventions. Disaster risk is characterized by variability, which requires a risk-based assessment. As a key best practice criterion, and in order to avoid overestimating the benefits and returns on investment, the review focuses on studies that provide a risk-based estimate of benefits. This review shows that for the limited evidence reported the economic case for DRM across a range of hazards is strong and that the benefits of investing in DRM outweigh the costs of doing so on average, by about four times the cost in terms of avoided and reduced losses. In an age of austerity, cost–benefit analysis continues to be an important tool for prioritizing efficient DRM measures but with a shifting emphasis from infrastructure-based options (hard resilience) to preparedness and systemic interventions (soft resilience), other tools such as cost-effectiveness analysis, multi-criteria analysis and robust decision-making approaches deserve more attention.

[1]  P. Debels,et al.  IUPA: a tool for the evaluation of the general usefulness of practices for adaptation to climate change and variability , 2009 .

[2]  John M. Gowdy,et al.  Toward an experimental foundation for benefit-cost analysis ☆ , 2007 .

[3]  Evaluación de Riesgos Naturales Al.  Seismic risk assessment of schools in the Andean Region in South America and Central America , 2010 .

[4]  J. Mirrlees,et al.  Project appraisal and planning twenty years on , 1990 .

[5]  R. Mechler.  Natural Disaster Risk Management and Financing Disaster Losses in Developing Countries , 2003 .

[6]  C. Rubin,et al.  Effectiveness and Efficiency of Early Warning Systems for Flash Floods , 2007 .

[7]  Dustin Cable,et al.  Environmental Justice , 2003 .

[8]  Myles T. Collins,et al.  Managing the Risk of Uncertain Threshold Responses: Comparison of Robust, Optimum, and Precautionary Approaches , 2007, Risk analysis : an official publication of the Society for Risk Analysis.

[9]  Francis W. Zwiers,et al.  Guidance Note for Lead Authors of the IPCC Fifth Assessment Report on Consistent Treatment of Uncertainties , 2010 .

[10]  Preliminary Analysis , 2020 .

[11]  Olivier Mahul,et al.  Earthquake Vulnerability Reduction Program in Colombia: A Probabilistic Cost-Benefit Analysis , 2006 .

[12]  S. Chopde,et al.  From Risk to Resilience Evaluating Costs and Benefits of Flood Reduction under Changing Climatic Conditions : Case of the Rohini River Basin , India Working Paper 4 , 2009 .

[13]  Edmund Penning-Rowsell,et al.  The Economics of Coastal Management: A Manual of Benefit Assessment Techniques , 1994 .

[14]  C. C. Venton,et al.  The Economics of Early Response and Resilience: Lessons from Kenya. , 2012 .

[15]  Melanie Keller.  Cost Benefit Analysis Theory And Practice , 2016 .

[16]  Stefan Hochrainer-Stigler,et al.  Probabilistic cost-benefit analysis of disaster risk management in a development context. , 2013, Disasters.

[17]  George Deodatis,et al.  Probabilistic Benefit-Cost Analysis for Earthquake Damage Mitigation: Evaluating Measures for Apartment Houses in Turkey , 2004 .

[18]  Nu. Cepal. Sede Subregional para el Caribe.  Report on the national training workshop in the ECLAC methodology for estimating the socio-economic and environmental effects of disasters. 19-21 April 2005, Cayman Islands , 2005 .

[19]  Gerald Fleming,et al.  Valuing weather and climate : economic assessment of meteorological and hydrological services , 2015 .

[20]  C. J Weiss. Kirkpatrick,et al.  Cost Benefit Analysis for Developing Countries , 1996 .

[21]  Raymond J. Burby,et al.  Sharing Environmental Risks: How To Control Governments' Losses In Natural Disasters , 1991 .

[22]  Stefan Hochrainer-Stigler,et al.  Macroeconomic Risk Management against Natural Disasters , 2006 .

[23]  C. Benson,et al.  Tools for Mainstreaming Disaster Risk Reduction: Guidance Notes for Development Organisations , 2007 .

[24]  Stefan Hochrainer-Stigler,et al.  Uttar Pradesh Drought Cost-Benefit Analysis , 2008 .

[25]  N. Stern.  The Economics of Climate Change: Implications of Climate Change for Development , 2007 .

[26]  Ocharo R.M. Kegendo R.S.,et al.  Strengthening Rural Community Bonds as a means of reducing Vulnerability. Geneva, International Federation of the Red Cross and Red Crescent Societies (IFRC) ProVention Consortium , 2003 .

[27]  Sergio L. Schmukler,et al.  Emerging Market Instability : Do Sovereign Ratings Affect Country Risk and Stock Returns ? , 1997 .

[28]  K. D. Bruin,et al.  Adapting to climate change in The Netherlands: an inventory of climate adaptation options and ranking of alternatives , 2009 .

[29]  Debarati Guha-Sapir,et al.  The Economic Impacts of Natural Disasters , 2013 .

[30]  Stefan Hochrainer-Stigler,et al.  The Costs and Benefits of Reducing Risk from Natural Hazards to Residential Structures in Developing Countries , 2010 .

[31]  Christopher B. Field,et al.  Managing the Risks of Extreme Events and Disasters to Advance Climate Change Adaptation: Index , 2012 .

[32]  Michael Havbro Faber,et al.  Bayesian Updating in Natural Hazard Risk Assessment , 2009 .

[33]  Simon Dietz,et al.  Adaptation in the UK: a decision-making process , 2010 .

[34]  Andrew M. Warner.  Cost - benefit analysis in World Bank projects , 2010 .

[35]  Reinhard Mechler,et al.  Making Communities More Flood Resilient: The Role of Cost Benefit Analysis and Other Decision-support Tools in Disaster Risk Reduction , 2014 .

[36]  Ilan Kelman,et al.  Does mitigation save? Reviewing cost-benefit analyses of disaster risk reduction , 2014 .

[37]  A. K. Dasgupta,et al.  Cost-Benefit Analysis: Theory and Practice. , 1973 .

[38]  Amartya Sen,et al.  Poverty And Famines , 1981 .

[39]  Reinhard Mechler,et al.  Cost-Benefit Analysis of Natural Disaster Risk Management in Developing and Emerging Countries , 2004 .

[40]  Sarah Bradshaw,et al.  Handbook for estimating the socio-economic and environmental effects of disasters. , 2003 .

[41]  A. Sanghi,et al.  Natural hazards, unnatural disasters : the economics of effective prevention , 2011 .

[42]  Michael Bründl,et al.  Avalanche Hazard Mitigation Strategies Assessed by Cost Effectiveness Analyses and Cost Benefit Analyses—evidence from Davos, Switzerland , 2007 .