Evaluating Sovereign Disaster Risk Finance Strategies: A Framework

Abstract

This paper proposes a framework for ex ante evaluation of sovereign disaster risk finance instruments available to governments for funding disaster losses. The framework can be used by governments to help choose between different financial instruments, or between different combinations of instruments, to achieve appropriate and financially efficient strategies to fund disaster losses, taking into account the risk of disasters, economic conditions, and political constraints. The paper discusses the framework in the context of a hypothetical country, with parameters selected to represent a disaster-prone small island state. The paper shows how a mix of instruments can be chosen to minimize the economic opportunity cost given the underlying disaster risk faced and prevailing economic and financial conditions.

Keywords: National Urban Development Policies & Strategies, Public Finance Decentralization and Poverty Reduction, Hazard Risk Management, Non Governmental Organizations, Public Sector Management and Reform, Urban Economics, Regional Urban Development, Urban Communities, Economics and Institutions, Public Sector Economics, Social Risk Management, Disaster Management, Urban Economic Development, Adaptation to Climate Change, City to City Alliances