Comments on The Impact of Manmade and Natural Disasters on Household Welfare by Yasuyuki Sawada

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Comments on The Impact of Manmade and Natural
Disasters on Household Welfare by Yasuyuki
Sawada

• Chandra Athukorala
• Arndt-Corden Division of Economics
• Research School of Pacific and Asian Studies
• Australian National University
• Prema-chandra.athukorala_at_anu.edu.au

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• A very informative paper on an important subject
• A nice blend of theory and empirics
• Well informed by the relevant literature and the
  contemporary policy debate on disaster management

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An Overview

• Two objectives
• To provide an interpretative survey of evidence
  on the impact of manmade and natural disasters on
  household welfare and
• To discuss policy options for designing
  strategies for mitigating risk arising from
  natural disasters

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• 1) Introduction
• A succulent typology of disasters,
  distinguishing between,
• Manmade and natural disasters
• idiosyncratic shocks (which affects specific
  individuals) and aggregate or convergence
  shocks (which affect a community/region as a
  whole)
• (My query Can we treat shocks to households
  from a manmade economic disaster as an
  aggregate shock. Not all households are
  equally affected some even benefits (ed
  cocoa/coffee producers in Indonesia in the
  context of the 1997/98 financial crisis.)

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• 2) Risk management and coping against disasters
• - an interpretative survey of the theory of ex
  ante risk management strategies and ex post
  coping behavior supplemented by empirical
  evidence from
• Asian financial crisis, 1997-98
• Hanshin-Awaji (Kobe) earthquake
• Indian ocean tsunami
• Key inferences (my take)
• Risk management against natural disasters is a
  difficult task because they are typically large
  aggregate shocks, and they are rare, unforeseen
  shock
• Coping strategies of affected household is
  largely determined by the stage of development of
  the given society/country (eg. Contrasts in
  behaviour of affected households in Hanshin-Awaji
  and Kobe and Nagapattinam)

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• 4) The role of market and non-market institutions
• mechanics and limitations of,
• self-insurance
• Formal (institutional) insurance, focusing
  (focusing on index insurance (insurance
  insurance contracts written against specific
  events)
• Key inferences
• Self-insurance (mutual risk sharing) is rather
  ineffective in the context of the big natural
  disaster (because they are aggregate (covariate)
  shock.

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• Formal insurance is a luxury in low- and
  middle-income countries households are
  characteristically risk averse
• (My query You have found that (Section 2)
  only 3 of the property in Hyogo Prefecture
  (Kobe) had been covered by earth quake
  insurance!)
• In any case, it is difficult to design
  actuarially fair insurance contracts against
  natural disasters because they are rare events

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• Policy implications
• Ex post public supports
• Ex ante risk management policies
• Managing the emergency rescue face how to
  match emergency demand and aid flows under
  imperfect information and uncertainties.

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My Comments

• The focus/coverage
• - Too broad (inferences suffer form some over
  generalisation)
• Preferable the paper should have focused solely
  on natural disasters
• (1) Fundamental differences between manmade
  disaster (in particular economic crises) and
  natural disasters
• Compared to natural disasters,
• Economic crises are not necessarily unforeseen
  events (they are an amplified version of regular
  macroeconomic fluctuations experienced by an
  economy).
• Institutional infrasrture requirements (both
  international and national) are not very binding
  in managing the crisis
• In a strict sense, the shock to households is not
  aggregate (covariate) but idiosyncratic.

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• Athukorala, Prema-chandra (2001) Crisis and
  Recovery in Malaysia The Role of Capital
  Controls, Cheltenham Edward Elgar.
• Athukorala, Prema-chandra and Peter Warr (2002)
  Vulnerability to a Currency Crisis Lessons from
  the Asian Experience, World Economy, Vol..25,
  No. 1, pp. 33-57.

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• The challenge of natural disaster management in
  developing countries need to treated separately
  from those in developed countries
• - low income levels which make self-insurance
  rather ineffective
• - Institutional and governance issues
• (Remember (from Section 2 of the paper)
  contrasting household responses to the shock in
  Kobe and Nagapattanam)

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• Discussion on policy options
• Too short compared to the rest
• Some additional points based on
• Athukorala, P and Budy Resosudarmo (2005), The
  Indian Ocean Tsunami Economic Impact, Disaster
  Management and Lessons, Asian Economic Papers,
  4(1), 1-39)

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• Environmental regulation
• - The devastation caused by tsunami in
  Indonesia, South India and Sri Lanka reveled a
  close relationship between the magnitude of the
  damage cause by the killer waves and the extent
  that environmental regulations had been violated
  (ed. destruction of corral reefs and mangroves
  and unplanned/illegal costal construction)

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• The need to educate the public about simple
  precautions in the event of natural disasters
• Crisis prone countries (such as Indonesia) should
  develop institutional mechanisms and procedures,
  backed by a central disaster management fund,
  with the capacity to engage swiftly in rescue and
  initial rehabilitation operations (with effective
  institutional links with national and
  international NGOs and various international
  organizations involved in disaster management)

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• Important to place emphasis on challenges of aid
  management in the aftermaths of a disaster.
• The availability of funds does not necessarily
  guarantee speedy rescue/reconstruction
• Massive/unplanned aid flows can have a damaging
  effect on the economy