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Challenges and Opportunities for Economic Evaluation of Disaster Risk Decisions

Abstract

Decision-makers today are required to assess disaster risk management options in increasingly complex and uncertain environments. Disaster risk management typically involves significant investment to mitigate low probability or highly uncertain events. We argue that under these circumstances existing economic evaluation toolkits do not adequately support decision-making. Our paper outlines the key economic evaluation tools used in decision-making and, in turn, advances a research agenda for future development and application of these approaches. Priority challenges to be addressed include resilience thinking, multi-capital assessment, valuing the future, accounting for distributional equity, social appetite for risk, and deep uncertainty. We also recommend a strong focus on capacity and capability building to improve the risk literacy of decision-makers.

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Notes

  1. 1.

    QuakeCoRE (https://www.quakecore.nz), Resilience to Nature’s Challenge’s (https://resiliencechallenge.nz) and the Natural Hazards Platform (https://www.naturalhazards.org.nz/).

  2. 2.

    CEA is frequently applied when an action must be undertaken in response to an issue i.e. a ‘do nothing’ option does not exist.

  3. 3.

    In New Zealand, for example, the Treasury has produced the ‘Guide to Social Cost Benefit Analysis’ with the explicit purpose of outlining steps and organizing principles for advisors to public decision makers to follow. An analogous CBA guide exists in Australia (Department of Prime Minister and Cabinet 2016). Similarly, in the UK the Green Book (HM Treasury 2011), which provides guidance to public sector bodies on appraisal of policies, programmes and policies, incorporates CBA as an important component of the appraisal process.

  4. 4.

    Sendai Framework for Disaster Risk Reduction 2015–203. United Nations, para [27, 28]

  5. 5.

    Triple bottom line reporting and full-cost accounting are examples of the transition towards more holistic evaluation methodologies which share many of the features of CBA, but are yet to fully gain traction in decision-making.

  6. 6.

    The expected benefits of a policy are calculated by taking the weighted average of the benefits over all contingencies, where the weights are the respective probabilities that the contingencies occur (Boardman et al. 2014).

  7. 7.

    A related issue that is sometimes encountered is debate over whose risk preferences should count in decision making. Following the 2010–2011 Canterbury earthquakes in New Zealand, many residential properties were subject to risks from rockfall. The Council’s decision to deem certain dwellings as uninhabitable was highly controversial given that many of the residents were prepared to live with the risk.

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Acknowledgements

This paper is a product of the confluence of three New Zealand government-funded research programmes: the Natural Hazards Research Platform, the Resilience to Nature’s Challenges National Science Challenge and the QuakeCoRE. We would like to gratefully acknowledge the support and funding of the Ministry of Business, Innovation and Employment (MBIE). This project was also (partially) supported by QuakeCoRE, a New Zealand Tertiary Education Commission-funded Centre. This is QuakeCoRE publication number 0172. We also acknowledge the support and contribution of the disaster research and practice community to the advancement of resilience practice and thinking in New Zealand.

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Correspondence to Charlotte Brown.

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Smith, N., Brown, C., McDonald, G. et al. Challenges and Opportunities for Economic Evaluation of Disaster Risk Decisions. EconDisCliCha 1, 111–120 (2017). https://doi.org/10.1007/s41885-017-0007-0

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Keywords

  • Disaster risk
  • Economic evaluation
  • Decision-making
  • Deep uncertainty
  • Cost benefit analysis
  • Resilience