Think Again: Higher Elasticity of Substitution Increases Economic Resilience

This paper shows that, counter-intuitively, a higher elasticity of substitution in model production function can lead to reduced economic resilience and larger vulnerability to shocks in production factor prices. This result is due to the fact that assuming a higher elasticity of substitution requires a recalibration of the production function parameters to keep the model initial state unchanged. This result has consequences for economic analysis, e.g., on the economic vulnerability to climate change.Substitution, Calibration, Constant Elasticity of Substitution, Shock

Firm-Network Characteristics and Economic Robustness to Natural Disasters

This article proposes a theoretical framework to investigate economic robustness to exogenous shocks such as natural disasters. It is based on a dynamic model that represents a regional economy as a network of production units through the disaggregation of sectorscale Input-Output tables. Results suggest that disaster-related output losses depend on direct losses heterogeneity and on the economic network structure. Two aggregate indexes, concentration and clustering, appear as important drivers of economic robustness, offering opportunities for robustness-enhancing strategies. Modern industrial organization seems to reduce short-term robustness in a trade-off against higher efficiency in normal times.Natural disasters, Economic impacts, Economic Network.

Reservefonds gegen Naturkatastrophen auf nationaler und europäischer Ebene

Katastrophenfonds funktionieren nach dem Prinzip der Kapitalakkumulation. Sie werden teilweise auf nationaler und europäischer Ebene eingesetzt, um sich gegen die finanziellen Schäden, verursacht durch extreme Naturereignisse, zu schützen. Basierend auf Beispielen in Europa, wie dem österreichischen Katastrophenfonds sowie dem europäischen Solidaritätsfonds, werden die Vor- und Nachteile von Reservefonds aufgezeigt und mögliche Lösungsvorschläge für gegenwärtige Probleme präsentiert. Vor allem die nichtrisikobasierte Anwendung wird als Problem betrachtet. Es werden Methoden vorgestellt, wie ein wahrscheinlichkeitstheoretischer Ansatz aussehen könnte, um sowohl direkte als auch indirekte Schäden bei der Analyse mit einzubeziehen und daraus Strategien zu entwickeln, die sich langfristig als nachhaltig erweisen.Catastrophe reserve funds are used to cover the potential costs of a disaster by capital accumulation. Based on examples in Europe, especially the national disaster fund in Austria and the European Solidarity Fund, the advantages and disadvantages of such a risk management instrument are shown and possible solutions are proposed. The main criticism is the non-risk based approach of these instruments. Methodologies how one can incorporate direct as well as indirect losses within a probability based approach are presented

Boolean delay equations on networks: An application to economic damage propagation

We introduce economic models based on Boolean Delay Equations: this formalism makes easier to take into account the complexity of the interactions between firms and is particularly appropriate for studying the propagation of an initial damage due to a catastrophe. Here we concentrate on simple cases, which allow to understand the effects of multiple concurrent production paths as well as the presence of stochasticity in the path time lengths or in the network structure. In absence of flexibility, the shortening of production of a single firm in an isolated network with multiple connections usually ends up by attaining a finite fraction of the firms or the whole economy, whereas the interactions with the outside allow a partial recovering of the activity, giving rise to periodic solutions with waves of damage which propagate across the structure. The damage propagation speed is strongly dependent upon the topology. The existence of multiple concurrent production paths does not necessarily imply a slowing down of the propagation, which can be as fast as the shortest path.Comment: Latex, 52 pages with 22 eps figure

Chapter 17 - Economics of adaptation

This chapter assesses the literature on the economics of climate change adaptation, building on the Fourth Assessment Report (AR4) and the increasing role that economic considerations are playing in adaptation decisionmaking and policy. AR4 provided a limited assessment of the costs and benefits of adaptation, based on narrow and fragmented sectoral and regional literature (Adger et al, 2007). Substantial advances have been made in the economics of climate change adaptation after AR4

Ranking Port Cities with High Exposure and Vulnerability to Climate Extremes

DOI:10.1787/011766488208This global screening study makes a first estimate of the exposure of the world's large port cities to coastal flooding due to storm surge and damage due to high winds. This assessment also investigates how climate change is likely to impact each port city's exposure to coastal flooding by the 2070s, alongside subsidence and population growth and urbanisation. The study provides a much more comprehensive analysis than earlier assessments, focusing on the 136 port cities around the world that have more than one million inhabitants in 2005. The analysis demonstrates that a large number of people are already exposed to coastal flooding in large port cities. Across all cities, about 40 million people (0.6% of the global population or roughly 1 in 10 of the total port city population in the cities considered here) are exposed to a 1 in 100 year coastal flood event. For present-day conditions (2005), the top ten cities in terms of exposed population are estimated to be Mumbai, Guangzhou, Shanghai, Miami, Ho Chi Minh City, Kolkata, Greater New York, Osaka-Kobe, Alexandria and New Orleans; almost equally split between developed and developing countries. When assets are considered, the current distribution becomes more heavily weighted towards developed countries, as the wealth of the cities becomes important. The top 10 cities in terms of assets exposed are Miami, Greater New York, New Orleans, Osaka-Kobe, Tokyo, Amsterdam, Rotterdam, Nagoya, Tampa-St Petersburg and Virginia Beach. These cities contain 60% of the total exposure, but are from only three (wealthy) countries: USA, Japan and the Netherlands. The total value of assets exposed in 2005 is across all cities considered here is estimated to be US3,000 billion; corresponding to around 5% of global GDP in 2005 (both measured in international USD)... Available at : http://www.oecd-ilibrary.org/environment/ranking-port-cities-with-high-exposure-and-vulnerability-to-climate-extremes_01176648820

Human impact parameterizations in global hydrological models improves estimates of monthly discharges and hydrological extremes: a multi-model validation study

Human activities have a profound influence on river discharge, hydrological extremes, and water-related hazards. In this study, we compare the results of five state-of-the-art global hydrological models (GHMs) with observations to examine the role of human impact parameterizations (HIP) in the simulation of the mean, high, and low flows. The analysis is performed for 471 gauging stations across the globe and for the period 1971-2010. We find that the inclusion of HIP improves the performance of GHMs, both in managed and near-natural catchments. For near-natural catchments, the improvement in performance results from improvements in incoming discharges from upstream managed catchments. This finding is robust across GHMs, although the level of improvement and reasons for improvement vary greatly by GHM. The inclusion of HIP leads to a significant decrease in the bias of long-term mean monthly discharge in 36-73% of the studied catchments, and an improvement in modelled hydrological variability in 31-74% of the studied catchments. Including HIP in the GHMs also leads to an improvement in the simulation of hydrological extremes, compared to when HIP is excluded. Whilst the inclusion of HIP leads to decreases in simulated high-flows, it can lead to either increases or decreases in low-flows. This is due to the relative importance of the timing of return flows and reservoir operations and their associated uncertainties. Even with the inclusion of HIP, we find that model performance still not optimal. This highlights the need for further research linking the human management and hydrological domains, especially in those areas with a dominant human impact. The large variation in performance between GHMs, regions, and performance indicators, calls for a careful selection of GHMs, model components, and evaluation metrics in future model applications

Flood Proofing Low-Income Houses in India: an Application of Climate-Sensitive Probabilistic Benefit-Cost Analysis

Poor communities in high risk areas are disproportionately affected by disasters compared to their wealthy counterparts; yet, there are few analyses to guide public decisions on pro-poor investments in disaster risk reduction. This paper illustrates an application of benefit-cost analysis (BCA) for assessing investments in structural flood proofing of low-income, high-risk houses. The analysis takes account of climate change, which is increasingly viewed as an important consideration for assessing long-term investments. Specifically, the study focuses on the Rohini river basin of India and evaluates options for constructing non-permanent and permanent residential structures on a raised plinth to protect them against flooding. The estimates show a positive benefit-cost ratio for building new houses on a raised plinth, while the ratio is less than one for demolishing existing houses to rebuild on a raised plinth. Climate change is found to significantly affect the BCA results. From a policy perspective, the analysis demonstrates the potential economic returns of raised plinths for ‘building back better’ after disasters, or as a part of good housing design practice

Adaptation responses to climate change differ between global megacities

Urban areas are increasingly at risk from climate change, with negative impacts predicted for human health, the economy and ecosystems1, 2. These risks require responses from cities to improve their resilience. Policymakers need to understand current adaptation spend to plan comprehensively and effectively. Through the measurement of spend in the newly defined ‘adaptation economy’, we analyse current climate change adaptation efforts in ten megacities. In all cases, the adaptation economy remains a small part of the overall economy, representing a maximum of 0.33% of a city’s gross domestic product (here referred to as GDPc). Differences in total spend are significant between cities in developed, emerging and developing countries, ranging from £15 million to £1,600 million. Comparing key subsectors, we demonstrate the differences in adaptation profiles. Developing cities have higher proportional spend on health and agriculture, whereas developed cities have higher spend on energy and water. Spend per capita and percentage of GDPc comparisons more clearly show disparities between cities. Developing country cities spend half the proportion of GDPc and significantly less per capita, suggesting that adaptation spend is driven by wealth rather than the number of vulnerable people. This indicates that current adaptation activities are insufficient in major population centres in developing and emerging economies