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Methodological considerations Methodological considerations of disaster damage of disaster damage
assessmentassessment
World Bank/ECLAC Workshop on Natural Disaster Evaluation
René A. HernándezWashington, D.C. 14-15 April, 2004
ContentsContents
Purpose and usefulness of a general assessment− Economic− Social− Environment
Assessment criteria− Private and shadow prices− Constant and present value− Replacement cost− Reconstruction investment− Mitigation investment
Direct, indirect and macroeconomic effects Sources of information
PurposePurpose
Provide a set of consistent guidelines for the socio-economic and environmental assessment of disasters
Provide a multi-sectoral and multidisciplinary quantification method for disaster affected sectors
Provide standard sectoral procedures that allow comparability of results
Policy instrument for the decision making process Conceptual improvement for measuring aspects not
included in national accounting and assessing specific vulnerability
Provide a tool for reconstruction, mitigation and planning resilience
BenefitsBenefits
Provides additional criteria for simulation analysis as well as economic forecasting
Allows to determine the country’s absorption capacity to face reconstruction tasks
Contributes to estimate the financial gap Facilitates training in damage valuation and formulation of
mitigation strategies Facilitates coordination of affected population with civil
protection authorities, emergency and relief organizations Reveals the systemic nature of the development process
and the interaction and interdependence amongst sectors and stakeholders
Assessment criteria
In terms of economic impact, a disaster may be considered the opposite of an investment project− Initial investment (disinvestment)− The lifetime of the project (the period in
which markets are disrupted)− The flow of costs and benefits (the impact
on prices and quantities on the flow of goods and services)
Assessment criteria
Economic assessment of changes in the flow of goods and services involves comparing the “non-disaster situation” and the “disaster situation” rather than the “pre” and “post” disaster situation
Private assessment takes market prices whereas social assessment uses shadow prices (include indirect effects and externalities)
Assessment criteriaAssessment criteriaMeasuring the damage gap (delta)Measuring the damage gap (delta)
Non-disaster Non-disaster conditions (ex ante)conditions (ex ante)
Expected Expected performance (without performance (without
disaster) 3-5 yearsdisaster) 3-5 years
Disaster impact Disaster impact (ex post)(ex post)3-5 years3-5 years
The measure The measure
Of direct and indirect damagesOf direct and indirect damages
Upon the non-disaster situation Upon the non-disaster situation
(sector by sector baselines) is aggregated into the (sector by sector baselines) is aggregated into the national accounts and determines the resulting disaster-national accounts and determines the resulting disaster-
caused scenario, as the gap over the expected caused scenario, as the gap over the expected performance prior to the event. Several scenarios may performance prior to the event. Several scenarios may be outlined, based on the assumptions made for the be outlined, based on the assumptions made for the
reconstruction processreconstruction process
Private and Shadow prices
Private and shadow prices differ when the project under assessment:− Generates public goods− Implemented under market imperfections− Implemented under taxes, subsidies, quotas− Implemented with the existence of externalities
Shadow prices: foreign currency, labour, social discount rate
The use of private prices appears to be more practical given the complexity of estimating shadow prices
Damage assessment options
Depreciation value (book value)Replacement cost
− Includes mitigation elements− Technological advances
Replacement cost− With original design− Without deducting depreciation
Damage assessment options
Production sectors− Producer prices
Interrupted service production− Fares paid by the consumer
Costs and prices must be considered in “real” terms (financing costs are not included)
Calculations should be made in local currency
The stock-flow conceptThe stock-flow concept
Direct effectsDirect effects Impact on capital Impact on capital
stock (public/private)stock (public/private)− InfrastructureInfrastructure− MachineryMachinery− InventoriesInventories
Occur immediately Occur immediately during or after the during or after the phenomenon that phenomenon that caused the disastercaused the disaster
Indirect effectsIndirect effects Impact on flowsImpact on flows
− ProductionProduction− Reduced income Reduced income
and increased and increased expensesexpenses
Occur after the Occur after the phenomenon, for a phenomenon, for a time-period that can time-period that can last from weeks to last from weeks to monthsmonths
The stock-flow conceptThe stock-flow concept
• Indirect effects sometimes produce major benefits that can be estimated and must be deducted from the total damage estimate
• Some indirect effects may be difficult to identify and impossible to quantify
• Indirect effects such as higher operational costs, diminished production or service provision are normally estimated in monetary terms
D = Va – VbD = Va – Vb
Where Va es the initial condition expected for a variable Where Va es the initial condition expected for a variable (sectoral, weighed) and Vb is the discounted effect of the (sectoral, weighed) and Vb is the discounted effect of the disaster.disaster.
K = Ka – KbK = Ka – KbMeasures the capital (assets) lost, estimated by compiling Measures the capital (assets) lost, estimated by compiling
direct damages computed sector by sector.direct damages computed sector by sector.
Y = Ya – YbY = Ya – YbMeasures the production/income lossesMeasures the production/income losses
The capital/income-production ratio is generally The capital/income-production ratio is generally assumed not to vary substantively as a result assumed not to vary substantively as a result of the disasterof the disaster
THE “PERVERSE EFFECT” OF DISASTERS ON GROSS THE “PERVERSE EFFECT” OF DISASTERS ON GROSS CAPITAL FORMATION IN A SMALL ECONOMY CAPITAL FORMATION IN A SMALL ECONOMY Adapted from Mora, “El impacto de los desastres, aspectos sociales, polítifcos económicos, ambientales y su relación con el desarrollo Adapted from Mora, “El impacto de los desastres, aspectos sociales, polítifcos económicos, ambientales y su relación con el desarrollo de nuestros paísesde nuestros países
(BID, 1999)(BID, 1999)
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DEVELOPING DEVELOPING COUNTRIESCOUNTRIESINDUSTRIALIZED INDUSTRIALIZED COUNTRIESCOUNTRIES
** DISASTEDISASTERR
THE EFFECT OF SUCCESSIVE DISASTERS ON THE EFFECT OF SUCCESSIVE DISASTERS ON
CAPITAL FORMATION CAPITAL FORMATION Adapted from Mora, “El impacto de los desastres, aspectos sociales, polítifcos económicos, ambientalesAdapted from Mora, “El impacto de los desastres, aspectos sociales, polítifcos económicos, ambientales
y su relación con el desarrollo de nuestros países (BID, 1999)y su relación con el desarrollo de nuestros países (BID, 1999)
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** TIMETIME
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DEVELOPING COUNTRIIESDEVELOPING COUNTRIIES
INDUSTRIALIZED INDUSTRIALIZED COUNTRIESCOUNTRIES
** DISASTERDISASTER
Macroeconomic effectsMacroeconomic effects
Identify the key development factors of the economyIdentify the key development factors of the economy Define the economic outlook at the time of the Define the economic outlook at the time of the
disaster: growth path, business cycle, investment disaster: growth path, business cycle, investment level, fiscal stance, domestic savings, FDI flows, level, fiscal stance, domestic savings, FDI flows, current and capital account balances, external current and capital account balances, external sector, aggregate demand and supplysector, aggregate demand and supply
Collect macroeconomic data from national Collect macroeconomic data from national authorities, academia and private sources authorities, academia and private sources
Find existing input-output tables, SAMs or weighing Find existing input-output tables, SAMs or weighing factors that indicate intersectoral linkagesfactors that indicate intersectoral linkages
Macroeconomic effectsMacroeconomic effects
Based on all available sources, design the possible Based on all available sources, design the possible scenarios or short and medium term projections scenarios or short and medium term projections before the disasterbefore the disaster
Build a price table at current value for the disaster Build a price table at current value for the disaster period with at least five year projections. There may period with at least five year projections. There may have been more than one pre-disaster scenario for have been more than one pre-disaster scenario for the main economic variablesthe main economic variables
Build a constant-value (real magnitude) serie for the Build a constant-value (real magnitude) serie for the main variables (using the country’s base year, either main variables (using the country’s base year, either in local currency or US dollarsin local currency or US dollars
Select the rate of exchange that will be used for the Select the rate of exchange that will be used for the valuationvaluation
Future ScenariosFuture Scenarios
− 11stst. Scenario: damage assessment and event’s impact, . Scenario: damage assessment and event’s impact, without including reconstruction actionswithout including reconstruction actions
− Alternative reconstruction scenariosAlternative reconstruction scenarios Taking into account no longer the replacement but the reconstruction Taking into account no longer the replacement but the reconstruction
costscosts Emerging reconstruction priorities, sector by sectorEmerging reconstruction priorities, sector by sector The emerging reconstruction strategies in the immediate weeks after The emerging reconstruction strategies in the immediate weeks after
the disasterthe disaster The economy’s absorption capacity of foreign resourcesThe economy’s absorption capacity of foreign resources The economy’s capacity to execute projectsThe economy’s capacity to execute projects The performance of key economic variables in the face of an increase The performance of key economic variables in the face of an increase
or impending reorientation of resources for reconstruction: interest or impending reorientation of resources for reconstruction: interest rates, indebtedness, inputs and production means availability (raw rates, indebtedness, inputs and production means availability (raw materials, capital goods, domestic saving, labour force, etc.)materials, capital goods, domestic saving, labour force, etc.)
The situation after the disasterThe situation after the disaster
From sectoral valuations assess the value-added changes expected for every sector in a short term/medium-term period (3-5 years or more)
Based on input-output tables, SAMs or sector weighing factors, determine the projection of damages of one sector to the others
A damage scenario is built (taking into account the measured losses at replacement value) and variations in the main economic gaps, GDP, BOP, public finances, prices and inflation, employment and gross investment
Sources of informationSources of information
Strategic sources The press Maps Verification visits Surveys
− Quick appraisal− Household surveys− Expert’s quick
appraisal
Secondary sources− Census− National or regional
reports Interviews Remote sensing data Sistemas de
información geográfico
THE PROCESS OF DISASTER EVALUATIONTHE PROCESS OF DISASTER EVALUATION
VALUE OF DAMAGESBy economic actors and sectors
PublicPrivate
REPLACEMENT COSTSBy economic sectors and actors
PublicPrivate
RECONSTRUCTION REQUIREMENTSBy economic and sector actors
PublicPrivate
TECHNOLOGICAL IMPROVEMENT
REINFORCEMENT/REINGENEERINGPREVENTIONMITIGATION
Scheduling
Input availabilityMaterialHumanFinacial
Macroeconomic impact
At present value costsIncludes asset depreciation
Considers the state of asset at time of damageDiscounts lack of maintenantce
Absorption capacityMaterial
Work forceInstitutuional
Project formulationReconstrction and replacement
Mitigation and reinforcementPrevention
MACROECONOMIC VIABILITY SUSTAINABILITY
CREDIBILITY
Financial implicationsPublicPrivate
Domerstic resourcesCreditsDonations
Insurance and reinsuranceExternal resourcesCreditsDonations
Sector by sector valuation methodologySector by sector valuation methodology
Social SectorsSocial Sectors− HousingHousing− HealthHealth− Education, culture, Education, culture,
sportssports InfrastructureInfrastructure
− Transport and Transport and communicationscommunications
− EnergyEnergy− Water and sewerageWater and sewerage
Productive sectors Productive sectors − Goods: agriculture, industryGoods: agriculture, industry− Services: commerce, Services: commerce,
tourism, etc.tourism, etc. Global impactGlobal impact
− On the environmentOn the environment− Gender perspectiveGender perspective− Employment and social Employment and social
conditionsconditions− Macroeconomic Macroeconomic
assessmentassessment