The impact of natural and manmade disasters on household welfare

Abstract

AbstractIn this article, we provide selective evidence on the impact of natural and manmade disasters on household welfare. First, we consider ex ante risk management and ex post risk‐coping behaviors separately, showing evidence from the Asian economic crisis, earthquakes, and tsunami disasters. Second, we differentiate idiosyncratic risks from nondiversifiable aggregate risks that characterize a disaster. We also discuss the difficulties of designing index‐type insurance against natural disasters, which are often rare, unforeseen events. Then, we investigate the role of self‐insurance against large‐scale disasters under which formal or informal mutual insurance mechanisms are largely ineffective. Credit accessibility is identified as one of the key factors facilitating risk‐coping strategies.