Impact of Behavioral Issues on Green Growth Policies and Weather-Related Disaster Reduction in Developing Countries

Impact of Behavioral Issues on Green Growth Policies and Weather-Related Disaster Reduction in Developing Countries

This paper focuses on how developing countries can change the way they prepare for disasters so they are better equipped to sustain economic growth. It discusses the importance of considering the goals of key decision makers and the need to understand the perceptions, systematics biases, and heuristics used by the relevant interested parties (the affected public, private and public sector organizations, and nongovernmental organizations) in choosing between alternatives. The paper highlights the importance of undertaking benefit-cost analysis to evaluate disaster risk reduction measures, recognizing that decision makers might not make meaningful use of this policy tool given their behavioral biases and simplified heuristics. To address these issues, the authors propose green growth strategies that involve multi-year contracts coupled with short-term incentives that have a chance of being implemented. The strategies focus on the role of multi-year micro-insurance, long-term loans, and multi-year catastrophe bonds that reflect the institutional arrangements in the developing country. The paper illustrates this proposal in the case of farmers' agricultural practices and investment decisions that reduce losses to property from catastrophic disasters such as drought.

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Bibliographic Details
Main Authors: Kunreuther, Howard, Michel-Kerjan, Erwann
Language:English
en_US
Published: World Bank, Washington, DC 2012-10
Subjects:ACCOUNTING, ADMINISTRATIVE COSTS, AGRICULTURAL PRODUCTION, ASSURANCE, BANKS, BID, BOND, BUDGET CONSTRAINTS, BUDGETING, BUSINESS INTERRUPTION INSURANCE, CAPITAL MARKETS, CATASTROPHE BONDS, CATASTROPHE REINSURANCE, CATASTROPHE RISK FINANCING, CATASTROPHIC LOSS, CATASTROPHIC LOSSES, CLIMATE, CLIMATE CHANGE, CLIMATE RELATED DISASTERS, COMMERCIAL INSURANCE, CONSUMER BEHAVIOR, CONSUMERS, COST ANALYSES, COST ESTIMATES, COUNTRY RISK, COVERAGE, CREDIT RISK, CREDITWORTHINESS, CROP INSURANCE, DAMAGE FROM HURRICANES, DAMAGES, DEFAULT RATE, DEVELOPING COUNTRIES, DEVELOPING COUNTRY, DEVELOPMENT NETWORK, DISASTER, DISASTER AID, DISASTER MITIGATION, DISASTER PRONE AREA, DISASTER REDUCTION, DISASTER RELIEF, DISASTER RISK, DISASTER RISK FINANCING, DISASTER RISK REDUCTION, DISASTERS, DISCOUNT RATE, DISCOUNT RATES, DONOR COMMUNITY, DRAINAGE SYSTEMS, DROUGHT, DROUGHTS, EARTHQUAKE, ECOLOGICAL ECONOMICS, ECONOMIC DEVELOPMENT, ECONOMIC GROWTH, ECONOMIC IMPACT, EMERGING ECONOMIES, EQUIPMENT, EVACUATION, EX ANTE RISK FINANCING MECHANISMS, EXPENDITURE, EXPENDITURES, EXTREME EVENT, EXTREME EVENTS, EXTREME RAINFALL, EXTREME RAINFALL EVENTS, FARMER, FARMERS, FEASIBILITY, FINANCIAL ASSISTANCE, FINANCIAL CONSTRAINTS, FINANCIAL INSTRUMENT, FINANCIAL MANAGEMENT, FINANCIAL MARKETS, FINANCIAL POLICY, FINANCIAL PRODUCTS, FLOOD, FLOOD DAMAGE, FLOOD INSURANCE, FLOODED, FLOODING, FLOODS, FREE ASSETS, GLOBAL REINSURANCE, GROSS DOMESTIC PRODUCT, HEALTH CARE, HOLDING, HUMAN CAPITAL, HURRICANE, HURRICANES, INCOME, INDEMNITY, INSURANCE, INSURANCE COMPANY, INSURANCE CONTRACT, INSURANCE INDUSTRY, INSURANCE POLICIES, INSURANCE POLICY, INSURANCE PREMIUMS, INSURANCE PRODUCT, INSURANCE PRODUCTS, INSURANCE RATES, INSURANCE SCHEME, INSURANCE SCHEMES, INSURER, INSURERS, INTEREST RATE, INTERNATIONAL BANK, INVESTING, INVESTMENT DECISIONS, INVESTMENT STRATEGIES, LABOR PRODUCTIVITY, LAWS, LEGAL PROTECTIONS, LEVEL OF RISK, LIQUIDITY, LIQUIDITY CONSTRAINTS, LOAN, LONG-TERM LOANS, MATURITY, MICRO-FINANCE, MICRO-INSURANCE, MICROCREDIT, MICROINSURANCE, MITIGATION MEASURES, MONEY MARKET, MORAL HAZARD, NATURAL CATASTROPHES, NATURAL DISASTERS, NATURAL HAZARDS, NONGOVERNMENTAL ORGANIZATIONS, PAYMENT OF INTEREST, PENSION, PENSIONS, POLICY ANALYSIS, POLICY IMPLICATIONS, PORTFOLIO, PORTFOLIO RISKS, POTENTIAL INVESTORS, PRICE STABILITY, PROGRAMS, REINSURANCE, REINSURANCE CONTRACTS, REINSURERS, RELIEF, RESERVE, RESERVES, RETURN, RETURNS, RISK AVERSION, RISK EXPOSURE, RISK INSURANCE, RISK MANAGEMENT, RISK MANAGEMENT PROCESS, RISK TRANSFER, SAFETY, SAFETY NET, SECURITIES, SETTLEMENT, SMALL BUSINESSES, TECHNICAL ASSISTANCE, TEMPORARY HOUSING, TERRORISM, TERRORIST, TRADE UNION, TREASURY, TREATIES, VICTIMS, WAR, WEATHER INSURANCE,
Online Access:http://documents.worldbank.org/curated/en/2012/10/16840538/impact-behavioral-issues-green-growth-policies-weather-related-disaster-reduction-developing-countries
https://hdl.handle.net/10986/12073
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Summary:This paper focuses on how developing countries can change the way they prepare for disasters so they are better equipped to sustain economic growth. It discusses the importance of considering the goals of key decision makers and the need to understand the perceptions, systematics biases, and heuristics used by the relevant interested parties (the affected public, private and public sector organizations, and nongovernmental organizations) in choosing between alternatives. The paper highlights the importance of undertaking benefit-cost analysis to evaluate disaster risk reduction measures, recognizing that decision makers might not make meaningful use of this policy tool given their behavioral biases and simplified heuristics. To address these issues, the authors propose green growth strategies that involve multi-year contracts coupled with short-term incentives that have a chance of being implemented. The strategies focus on the role of multi-year micro-insurance, long-term loans, and multi-year catastrophe bonds that reflect the institutional arrangements in the developing country. The paper illustrates this proposal in the case of farmers' agricultural practices and investment decisions that reduce losses to property from catastrophic disasters such as drought.

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