Reviewing estimates of the economic efficiency of disaster risk management: opportunities and limitations of using risk-based cost-benefit analysis
Authors: Mechler R
Reference: Natural Hazards, Article in press (Published online 5 February 2016)
There is a lot of rhetoric suggesting that disaster risk reduction (DRR) pays, yet surprisingly little in the way of hard facts. This review paper examines the evidence regarding the economic efficiency of DRM based on CBA. Specifically, it addresses the following questions: What can be said about current and best practice regarding CBA for DRR including limitations and alternatives? And, what, if at all, can be said in terms of quantitative insight for informing policy and practice? The review compares the documented evidence on the net benefits over range of disaster management interventions, such as risk reduction, preparedness and risk financing. The review also critically discusses the applicability of cost-benefit analysis as well as other economic decision-supporting tools for assessing the efficiency of certain DRM interventions. Disaster risk is characterized by variability, which requires a risk-based assessment. As a key best practice criterion, and in order to avoid overestimating the benefits and returns on investment, the review focuses on studies that provide a risk-based estimate of benefits. This review shows that for the limited evidence reported the economic case for DRM across a range of hazards is strong and that the benefits of investing in DRM outweigh the costs of doing so on average, by about four times the cost in terms of avoided and reduced losses. In an age of austerity, cost-benefit analysis continues to be an important tool for prioritizing efficient DRM measures but with a shifting emphasis from infrastructure-based option (hard resilience) to preparedness and systemic interventions (soft resilience), other tools such as cost-effectiveness analysis, multi-criteria analysis and robust decision-making approaches deserve more attention.
KEYWORDS: cost-benefit analysis; disaster risk management; appraisal; economic efficiency; multi-criteria analysis