Policy Trade-Offs in Building Resilience to Natural Disasters: The Case of St. Lucia
19 Pages Posted: 8 Apr 2019
Date Written: March 2019
Resilience to climate change and natural disasters hinges on two fundamental elements: financial protection -insurance and self-insurance- and structural protection -investment in adaptation. Using a dynamic general equilibrium model calibrated to the St. Lucia's economy, this paper shows that both strategies considerably reduce the output loss from natural disasters and studies the conditions under which each of the two strategies provides the best protection. While structural protection normally delivers a larger payoff because of its direct dampening effect on the cost of disasters, financial protection is superior when liquidity constraints limit the ability of the government to rebuild public capital promptly. The estimated trade-off is very sensitive to the efficiency of public investment.
Keywords: Real interest rates, Cost of capital, Total factor productivity, Capital, Private investments, Climate Change, Natural Disasters and Their Management, Government Policy, public capital, Papageorgiou, depreciation rate, natural disaster, public standard
JEL Classification: Q54, Q58, E01, H83, E62, G21, G3
Suggested Citation: Suggested Citation