Letters from Sendai no. 4: the economics of risk reduction

Reinhard Mechler of IIASA wrote the fourth letter, posted on 17 March 2015, from Working Session 17 on economics and decision-making in disaster risk reduction. About 300 negotiators and experts attended. The session was chaired by Samantha Chard, who co-led emergency management policy in Australia, and the Philippines planning minister gave a presentation.

Mechler looked back at the ten years since the 2005 Kobe conference. Investment in risk analysis had grown, and the reported split between funding before and after disasters had moved from about 5/95 to 13/87 percent. Losses kept rising all the same.

He proposed three directions:

• a stronger evidence base on the costs and benefits of risk reduction, where the broad ratio was about 1 to 4 euro, held with low to medium confidence;
• a logic of co-benefits, counting what an investment returns even in years without a disaster;
• multi-criteria analysis that looks beyond cost-benefit analysis alone.

Two examples backed the case. The Asian Development Bank had reached a 57/43 ratio of risk-reduction lending to post-disaster lending over 1995 to 2011. Stephane Hallegatte of the World Bank presented the idea of three dividends from risk reduction, which the next letter took further (no. 5).

Multi-criteria analysis became one of the methods in the ENHANCE alpine railway case study. The framework the conference adopted is summarised in the glossary.