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

Author/Editor:

Alessandro Cantelmo ; Leo Bonato ; Giovanni Melina ; Gonzalo Salinas

Publication Date:

March 8, 2019

Electronic Access:

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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.

Series:

Working Paper No. 19/54

Subject:

English

Publication Date:

March 8, 2019

ISBN/ISSN:

9781498302654/1018-5941

Stock No:

WPIEA2019054

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

18

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