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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TIMETIME

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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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