What Is a Disaster? An Economic Point of View

Abstract

This chapter focuses on the economic consequences of a disaster and discusses the definition of the " economic cost " of a disaster. It stresses that a natural disaster is not a natural event, but the combination of a natural hazard (e.g., a hurricane) with a human system that is exposed to it and suffers from damages and perturbations. It reviews concepts such as direct and indirect losses, market and non-market losses, and consumption and output losses. The chapter also describes some of the most important mechanisms that determine the economic consequences of a disaster, such as the response of prices or the propagation of impacts through supply chains. It reviews the various tools that have been developed to measure and assess output losses from disasters, covering econometric analyses, input-output and computable general equilibrium models. It concludes with a definition of economic resilience and stresses the fact that reducing disaster welfare impacts can be done by reducing direct losses or by building resilience. A natural disaster is not a " natural " event. Human and natural systems are affected by natural hazards, such as earthquakes, storms, hurricanes, intense precip-itations and floods, droughts, landslides, heat waves, cold spells, and thunderstorms and lightning. If a hazard affects a human system – from one house to one region – and causes sufficiently larger negative consequences to this system, the event can then be labeled as a natural disaster. But a disaster occurs only when there is the conjunction of a natural event – the hazard – and a human system, leading to negative consequences. As such, what we call a natural disaster is thus above all a social and human event (World Bank 2010). From an economic perspective, a natural disaster can be defined as a natural event that causes a perturbation to the functioning of the economic system, with a significant negative impact on assets, production factors, output, employment, or consumption. There are multiple formal definitions. The Center This chapter is based on a working paper coauthored with Valentin Przyluski.