Solving Commitment Problems in Disaster Risk Finance
Those at risk from natural disasters are typically under-protected, possibly because they expect benefactors such as governments and donors to come to their aid. Yet when relief comes, it is often insufficient, delayed or misallocated. Benefactors...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2016
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2016/06/26510516/solving-commitment-problems-disaster-risk-finance http://hdl.handle.net/10986/24638 |
| Summary: | Those at risk from natural disasters are
typically under-protected, possibly because they expect
benefactors such as governments and donors to come to their
aid. Yet when relief comes, it is often insufficient,
delayed or misallocated. Benefactors may wish to commit to
provide an efficient amount of fast well-targeted relief,
and leave the rest up to recipients, but such commitments
are difficult. This article analyses how transferring risk
to third-parties such as private insurers may help resolve
these commitment problems. Using a simple model of disaster
risk finance is used to identify three distinct commitment
problems and then show how various properties of risk
transfer schemes can help to resolve these problems. The
paper illustrates how these commitment problems play out
using examples from around the world, and demonstrates where
risk transfer schemes seem to have helped in practice.
Overall, the findings show that the benefits of such schemes
depend on the relative severity of the different commitment problems. |
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