Conference of the International Network ‘Routes towards Sustainability’
MULTI-HAZARD MITIGATION: A CHALLENGE FOR SUSTAINABILITY AND SAFETY
Ferrara, September 29th - 30th, 2014
Section 3: MANAGING NATURAL DISASTERS: ECONOMIC AND POLICY PERSPECTIVES
Roberto Zoboli Catholic University of Milan, SEEDS,CERIS-CNR
Marco Modica CERIS-CNR, SEEDS
1.
2.
3.
4.
5.
The research framework
‘Un-conventional’ evaluation
Socio-economic risk
Vulnerability/resilience
Prevention and insurance
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CERIS-CNR, Istituto di Ricerca sull'Impresa e lo Sviluppo, CNR, Milano
IRPI-CNR, Istituto di Ricerca per la Protezione Idrogeologica, CNR, Perugia
IDPA-CNR, Istituto per la Dinamica dei Processi Ambientali, CNR, Milano
INGV, Istituto Nazionale di Geofisica e Vulcanologia, Sezione di Milano –
Pavia and EUCENTRE
SEEDS, Sustainability, Environmental Economics and Dynamics Studies (interuniversity resercah center between: Università degli Studi di Ferrara;
Università degli Studi di Bologna; Università degli Studi di Roma Tor Vergata;
Università Roma 3; Università Cattolica di Milano)
!  supported by Fondazione Generali
Is#tuto'per'la'
Dinamica'dei'
Processi'
Ambientali'
Consiglio'
Nazionale'delle'
Ricerche
Research hypothesis
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Systematic unde-estimation of socioeconomic costs of natural disasters
which brings to:
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Under-estimation of the benefits of
prevention/mitigation
"  Including the value of prevention for
insurability and insurance schemes
If 1 good, then
2 and 3 better
If 2 and 3 good,
then 4 better
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Earthquake damage on buildings at market
values (CERIS + INGV)
Data on housing market values: Osservatorio
Mercato Immobiliare (OMI), Agenzia delle
Entrate (Observatory on housing market)
!  Event: May 2012 earthquake Emilia Romagna
!  How: Overlapping maps of phisical damage
data (INGV) and market value maps (CERIS)
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Advantages of market values:
!  (i) consistent with the estimate of houses value in national
(household) wealth estimates (see Bankitalia, 2013)*
!  (ii) beyond static accounting losses by capturing: (a) persistent
losses during time; (b) externality effects on housing market in
close areas
Advantages of reconstruction cost:
!  It is the actual cost to individual owners, if they reconstruct
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What the right/fair reference in public compensation of
damages?
Do market prices embody risks and safety features of houses?
* Houses 84% of households’ real assets and 57% of total wealth (2012)
Wealth of Italian househols, 1995-2012
(billion € at 2012 prices, source: Bankitalia 2013)
10000
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Totale attività reali
Ricchezza abitativa
The standard framework
!  R = F (H; E; V)
R = Risk; H = Hazard; E = Exposure; V =
Vulnerability
Where/how economic analysis?
!  Rse = G (H; Ese ; Vse/RESse)
Rse = Socio-economic risk
Ese = Socio-economic exposure
Vse/RESse = Socio-economic vulnerability/
resilience
Natural
System
Socioeconomic
system
Exposure
Hazard
Natural/phisical
Social/economic
Mixed (2 sides)
Vulnerability
Risk
E(cost) ex ante
Loss
(cost; ex post)
Resilience
Landslide risk
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Merging hazard maps and ‘value’ maps (IRPI +
CERIS)
Rse = G (H; Ese ; Vse/RESse)
H = mapping lanslide risk (regional/national)
Ese = housing values; population; …..
Outcome: mapping‘risk’ of socio-economic
losses
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What about Vse/RESse?
From vulnerability to resilience
!  What is socio-economic resilience? (Modica
and Reggiani, 2014)
!  Two “historical” definitions:
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" A measure of the speed of a socio-economic
system to its return to equilibrium after a shock
(Pimm, 1984)
" The “extent” of perturbation that can be absorbed
before the system is displaced from one state to
another (Holling, 1973)
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Then in the evaluation of socio-economic
resilience to the impact of disasters we stress:
the ability of the economy to cope, recover, and
reconstruct and therefore to minimize aggregate
consumption losses (Hallegatte, 2014)
Main characteristics:
◦  Ability to limit the magnitude of immediate production
losses for a given amount of asset losses
◦  Ability to reconstruct and recover
◦  Distribution of losses; households' vulnerability (i.e.
ability to smooth shocks over time with savings,
borrowing, and insurance); social protection system (or
the mechanisms for sharing risks across the population)
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Resilience Capacity Index developed by Kathryn A. Foster,
regional capacity to respond effectively to a future stress
The Resilience Capacity Index (RCI) is a single statistic
summarizing a region’s score on 12 equally weighted indicators
—four indicators in each of three dimensions encompassing
Regional Economic, Socio-Demographic, and Community
Connectivity attributes.
Modica and Reggiani
(2013)
Modica and Reggiani
(2013)
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Event: ER earthquake 2012
How much did manufacturing companies
suffer? How did they react?
SEEDS+CERIS: survey on ER manufacturing
companies
!  - damages
!  - comparative performances
!  - change in strategies
!  - ‘industrial district’ effect
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Is there a ‘prevention paradox’?
!  Literature evidence: Prevention/mitigation can have net
socio-economic benefits, but not done in many cases. Why?
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Costs: certain and today
Benefits (expected loss reduction): uncertain and tomorrow
! Bias towards present (high implicit discount rates)
! ‘Unconvincing’ counterfactuals: By definition we don’t see
the avoided losses; counterfactuals are always hypothetical
! The State unconditional insurer, so far (moral hazard)
! Cost of prevention largely an ‘opportunity cost’: prevention
often = ‘not to do’ (non-structural measures): no
economic business activated
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What is the link to Insurance?
Without insurance schemes:
!  Historically the State is the insurer on a solidarity basis via
public budget
!  Result: paradox of prevention, moral hazard, political
promince in funding reconstruction, …….
!  But now under budget constraint, unsustainale role
With insurance schemes:
!  Prevention and information (science): necessary conditions
!  Increasing individual self-prevention (self-insurance)
!  What will the State do on prevention (public budget)?
!  Wath will the State do on loss compensations (public budget)?
!  Result: Still uncertain Insurability, premia, and equity
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Main aims: prevention and insurance
#  Better
understanding of socio-economic costs of
disasters is needed
#  Present limitations: analytical frameworks and
specific data
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Other research paths open in VEDNI/EENDI:
"  Is there a role for economics in valuing human life (ex
ante risk analysis)? Explore VSL studies (SEEDS)
"  Is there a role for system dynamic modelling of social
systems (ex post and ex ante)? Exlpore SD + ABM (CERIS)
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Roberto Zoboli, UNICATT, CERIS and SEEDS
Massimiliano Mazzanti, UNIFE and SEEDS
Anna Montini, UNIBO and SEEDS
Mario Nosvelli, CERIS
Francesco Nicolli, CERIS and SEEDS
Marco Modica, CERIS and SEEDS
Irene Monasterolo, CERIS and SEEDS
Davide Antonioli, UNIFE and SEEDS
Elisabetta Genovese, CERIS
Giovanni Marin, CERIS and SEEDS
Alberto Marzucchi, UNICATT and SEEDS