When a natural disaster destroys public capital, these direct losses are exacerbated by indirect losses arising from reduced output while reconstruction takes place.
These indirect losses may be much larger, relative to the direct ones, in lowincome countries, because they lack the finance for rapid reconstruction. This paper uses a dynamic general equilibrium model to examine sovereign disaster risk insurance, increased taxation, and budget reallocation as alternative financing mechanisms for countries where increased borrowing is impractical.
The analysis suggests that insurance may or may not be helpful, depending on detailed circumstances, and that budget reallocation is potentially very damaging. Raised taxation, if feasible, may be an attractive option
This paper received financial support from the Department for International Development’s Humanitarian Innovation and Evidence Programme (HIEP) Sovereign Disaster Risk Finance and Insurance Project
Bevan, D. ; Adam, C. ; Financing the Reconstruction of Public Capital after a Natural Disaster. Policy Research Working Paper;No. 7718. World Bank, Washington, DC. © World Bank. (2016) https://openknowledge.worldbank.org/handle/10986/24635 License: CC BY 3.0 IGO.