Policy Trade-Offs in Building Resilience to Natural Disasters: The Case of St. Lucia

By Alessandro Cantelmo, Leo Bonato, Giovanni Melina, Gonzalo Salinas

March 8, 2019

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Alessandro Cantelmo, Leo Bonato, Giovanni Melina, and Gonzalo Salinas. Policy Trade-Offs in Building Resilience to Natural Disasters: The Case of St. Lucia, (USA: International Monetary Fund, 2019) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

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.

Subject: Environment, Expenditure, Financial institutions, Natural disasters, Public debt, Public investment and public-private partnerships (PPP), Public investment spending, Stocks

Keywords: Adaptation capital, Caribbean, Climate Change, Debt data, ECCU debt target, Government Policy, Investment, Natural disasters, Natural Disasters and Their Management, Public capital, Public investment and public-private partnerships (PPP), Public investment spending, Resilient capital, Risk premium, Stocks, Targeted debt reduction, WP

Publication Details

Pages:

18
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/054
Stock No:

WPIEA2019054
ISBN:

9781498302654
ISSN:

1018-5941

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