Government liabilities for disaster risk in industrialized countries: a case study of Australia

Hochrainer-Stigler, S, Keating, A, Handmer, J and Ladds, M 2018, 'Government liabilities for disaster risk in industrialized countries: a case study of Australia', Environmental Hazards, vol. 17, no. 5, pp. 418-435.


Document type: Journal Article
Collection: Journal Articles

Title Government liabilities for disaster risk in industrialized countries: a case study of Australia
Author(s) Hochrainer-Stigler, S
Keating, A
Handmer, J
Ladds, M
Year 2018
Journal name Environmental Hazards
Volume number 17
Issue number 5
Start page 418
End page 435
Total pages 18
Publisher Taylor and Francis
Abstract This paper explores sovereign risk preferences against direct and indirect natural disasters losses in industrialized countries. Using Australia as a case study, the analysis compares expected disaster losses and government capacity to finance losses. Utilizing a national disaster loss dataset, extreme value theory is applied to estimate an all-hazard annual loss distribution. Unusually but critically, the dataset includes direct as well as indirect losses, allowing for the analysis to consider the oft-ignored issue of indirect losses. Expected annual losses (direct, and direct plus indirect) are overlaid with a risk-layer approach, to distinguish low, medium and extreme loss events. Each risk layer is compared to available fiscal resources for financing losses, grounded in the political reality of Australian disaster financing. When considering direct losses only, we find support for a risk-neutral preference on the part of the Australian government for low and medium loss levels, and a risk-averse preference in regard to extreme losses. When indirect losses are also estimated, we find that even medium loss levels are expected to overwhelm available fiscal resources, thereby violating the available resources assumption underlying arguments for sovereign risk neutrality. Our analysis provides empirical support for the assertion that indirect losses are a major, under-recognised concern for industrialized countries. A risk-averse preference in regard to medium and extreme loss events recommends enhanced investment in both corrective and prospective risk reduction in relation to these risks level, in particular to reduce indirect losses.
Subject Environmental Science and Management not elsewhere classified
Keyword(s) Australia
direct and indirect losses
fiscal risk
Natural disasters
risk-layer
DOI - identifier 10.1080/17477891.2018.1426554
Copyright notice © 2018 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group
ISSN 1747-7891
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