Natural disasters and economic policy challenges

Abstract

The frequency of and magnitudes of natural disasters associated with exogenous variation of climate vary between areas. Household, business and government decisions on location and investment influence the private and society costs of natural disasters. Government economic policy towards natural disasters face a challenging trade-off between short term equity and long term efficiency objectives. Additional financial grants and subsidies for those adversely affected by a natural disaster event for equity reasons also reduce longer term private sector incentives and rewards to locate to less natural disaster-prone areas and to invest in mitigation strategies.