This paper reviews the empirical literature on the economic impacts of natural disasters to inform both climate adaptation policy and the estimation of potential climate damages. It covers papers that estimate the short- and long-run economic impacts of weather-related extreme events as well as studies regarding the determinants of the magnitude of those damages (including fatalities). The paper also includes a discussion of risk reduction options and the use of such measures as an adaptation strategy for predicted changes in extreme events with climate change.
A growing consensus in the scientific community holds that climate change could be worsening weather-related natural disasters. The Intergovernmental Panel on Climate Change (IPCC) released a special report in early 2012, which notes that climate change could be altering the frequency, intensity, spatial extent, duration, and/or timing of many climate-related extreme weather events (IPCC 2012). Even nonexperts are perceiving a trend toward more or worse extreme events: a 2012 poll of U.S. residents found that, by a margin of 2:1, people believe that the weather is getting worse, and a large majority believe climate change contributed to the severity of several recent natural disasters (Leiserowitz et al. 2012).
This paper reviews what we know about the economic impacts of natural disasters to inform both climate adaptation policy and the estimation of potential climate damages using integrated assessment models. It first reviews empirical estimates of the economic consequences of natural disasters and summarizes findings on the determinants of economic damages and fatalities. The paper then provides an overview of risk reduction measures that could be used to adapt to changing extremes. Since confidence in the impact of climate change on hydrometeorological (or weather-related) events is greater, the paper looks specifically at hydrometeorological disasters, and not geophysical disasters (although some papers group all natural hazards together and those papers are included as well). The review is focused on the empirical literature; it does not address the theoretical literature on the economic impacts of disasters or simulation- and modeling-based studies.
The focus of this review is also limited to economic impacts, although it should be noted that natural disasters can have profound social and political impacts (e.g., Lindell and Prater 2003), as well. Finally, as a further limit to the scope, this review is largely focused on literature published within the past couple of decades, a period during which new data sets and improved understanding of disaster losses have emerged. Recent working papers are included, in addition to peer-reviewed studies.
Estimating the full range of economic costs from natural disasters is difficult, both conceptually and practically. Complete and systematic data on disaster impacts are lacking, and most data sets are underestimates of all losses. The work reviewed here suggests negative consequences of disasters, although communities tend to have a lot of resilience, recovering in the short- to medium-term from all but the most devastating events. The worst disasters can have permanent economic consequences. Negative impacts are more severe for developing countries and smaller geographic areas. Damages also, intuitively, increase with the severity of the event.
Natural disasters generate many transfers and can have large distributional consequences, with some groups suffering devastating losses and others coming out ahead, even if overall impacts are close to neutral. Consequences are less severe in higher-income countries, countries with better institutions, and those with a higher level of education. Risk reduction options are available, but their adoption faces many barriers. Many groups fail to adopt risk reduction strategies for myriad reasons, although the occurrence of a disaster has been shown in some cases to increase investments in reducing risks. In addition, some evidence suggests that areas more prone to hazards invest more in reducing their impacts, providing some insight regarding future adaptation.
Author: Carolyn Kousky
