The Costs and Benefits of Reducing Risk from Natural Hazards to Residential Structures in Developing Countries

Risk Management and Decision Processes Center, The Wharton School,

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Date Published 2011
Version Working Paper # 2011-01
Primary Author Stefan Hochrainer-Stigler, Howard Kunreuther, Joanne Linnerooth-Bayer, Reinhard Mechler, Erwann Michel-Kerjan, Robert Muir-Wood, Nicola Ranger, Pantea Vaziri, and Michael Young
Other Authors
Theme Disaster Risk Mitigation and Housing Finance


This paper examines the benefits and costs of improving or retrofitting residential structures in highly exposed low- and middle-income developing countries such that they are less vulnerable to hazards during their lifetime. Since it is misleading to assess the benefits of prevention using deterministic models, the challenges for cost benefit analyses are to express avoided losses in probabilistic terms, evaluate and assess risk, monetize direct and indirect benefits and include dynamic drivers such as changing population, land use and climate. In detail, we examine structures exposed to three different hazards in four countries, including hurricane risk in St. Lucia, flood risk in Jakarta, earthquake risk in Istanbul and flood risk within the Rohini River basin in Uttar Pradesh (India). The purpose in undertaking these analyses is to shed light on the benefits and costs over time, recognizing the bounds of the analysis, and to demonstrate a systematic probabilistic approach for evaluating alternative risk reducing measures.

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