This paper addresses a critical problem in macroeconomic planning for natural disaster losses: how to incorporate potential future losses into current planning activity. The authors develop a technique to integrate probabilistic natural hazard losses into macroeconomic planning models. Probabilistic losses to capital stock (direct losses) serve as input to a macroeconomic model, which consequently calculates the macroeconomic impacts. The macroeconomic effects calculated comprise the indirect effects of losing and not being able to replace capital stock sufficiently or in a timely manner, as well as the effects of diverting funds to relief and reconstruction activities. The modeling can serve as a tool for planning for the effects of natural disasters before they occur and for engaging in appropriate risk management activities.
Freeman, P., Martin, L., Mechler, R. and Warner, K. (2004), "A methodology for incorporating natural catastrophes into macroeconomic projections", Disaster Prevention and Management, Vol. 13 No. 4, pp. 337-342. https://doi.org/10.1108/09653560410556564
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