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The Economic Impacts of Natural Disasters$
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Debarati Guha-Sapir and Indhira Santos

Print publication date: 2013

Print ISBN-13: 9780199841936

Published to Oxford Scholarship Online: September 2013

DOI: 10.1093/acprof:oso/9780199841936.001.0001

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Cost-Benefit Analysis of Disaster Risk Management and Climate Adaptation

Cost-Benefit Analysis of Disaster Risk Management and Climate Adaptation

The Case of Bangladesh

(p.80) 4 Cost-Benefit Analysis of Disaster Risk Management and Climate Adaptation
The Economic Impacts of Natural Disasters

Reinhard Mechler

K. M. Nabiul Islam

Oxford University Press

This chapter discusses the potential of applying cost-benefit analysis (CBA) to the assessment of the economic efficiency of natural disaster risk management and climate adaptation projects. CBA is a standard tool for assessing the economic efficiency of projects and policies, yet it has generally not been applied sufficiently and robustly to climate adaptation and disaster risk management projects, particularly in a development assistance context. The analysis is contextualized by a case study on flood proofing homesteads against flood risk to riverine islands, known as Chars, in Bangladesh. We discuss the key methodological elements of our approach involving a consideration of the dynamic driving forces of hazard, vulnerability, and exposure. A key concept employed in this analysis is the probabilistic representation of risks by loss-frequency functions. We consider monetary and economic risks, which generate benefits when they are avoided, in terms of structural risk to dwellings, inventory risk, income risk and other potential losses, such as due to cleanup costs. While the results indicate that overall the options studied seem to be economically efficient based on CBA decision rules, we stress that estimating extreme event risk and the benefits of risk reduction is fraught with large and many uncertainties. These uncertainties importantly reduce the economic viability of options studied and should thus be factored into any decision process.

Keywords:   cost-benefit analysis, disaster economics, disaster risk management, climate adaptation, flood risk, Char, Bangladesh

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