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Natural disasters, mitigation investment and financial aid

Published online by Cambridge University Press:  07 January 2016

Rainer Andergassen  and
Luigi Sereno
Rainer Andergassen
Affiliation:
Department of Economics, University of Bologna, Bologna, Italy. E-mail: rainer.andergassen@unibo.it
Luigi Sereno
Affiliation:
Department of Economics, University of Bologna, Piazza Scaravilli 2, 40126, Bologna, Italy. E-mail: luigi.sereno@unibo.it
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Abstract

We consider firms facing the risk of natural disasters and study their problem of investing in mitigation if financial insurance is not available. The firms' problem is to choose the optimal timing and size of the investment. The timing problem leads to a critical productivity size where firms above it invest in mitigation while firms below the threshold decide to not invest. We investigate how cash aid such as emergency response, and in-kind aid such as reconstruction, rehabilitation or disaster risk reduction investments, affect the critical productivity threshold and the optimal investment size and characterize the international donor's optimal charity strategy.

Type
Research Article
Information
Environment and Development Economics , Volume 21 , Issue 5 , October 2016 , pp. 603 - 625
Copyright
Copyright © Cambridge University Press 2016 

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