How can public policy help manage risks from natural hazards in urban areas? The focus of this paper is on ex-ante preventive measures. People and firms are attracted to cities to benefit from economies of scale and agglomeration, reflected in higher wages and productivity. Institutions that govern the use and transfer of land facilitate higher economic densities and influence development in hazardous locations. Ensuring that urban public services are adequate and infrastructure well maintained can generate welfare gains to the local population while reducing their risk from day to day hazards. Large scale investments designed specifically for disaster mitigation need to consider economic efficiency as well as distributional effects. While institutional weakness and land market distortions may lead to the development of informal settlements in hazardous locations, disaster risk reduction strategies should not end up being disruptive for the livelihoods of poor people. What is required is a combination of carrots, such as improved plots in safer areas with affordable transport that links distant locations to jobs, and sticks, including enforcement of land use and zoning to discourage the spread of informal developments in risky locations.

This paper is organized in three sections. First, it will discuss why a separate treatment of urban disaster risk is warranted (section 2). It will be argued that the benefits of economic density come with a higher concentration of people and assets at risk from natural hazards. The research will go into how geographic concentration changes the range of options and priorities for dealing with natural hazard risk – both for individuals and for public policy.

An overview of existing empirical work as well as new findings to highlight how hazard risk is valued by firms and households will be provided in the third section. The main finding is that if land markets work well, information on the location of natural hazards is priced into rents or home prices. However, many poor people are attracted by lower land prices in hazard prone locations thereby increasing the vulnerability of the poor.

The paper also discusses appropriate policy priorities to mitigate disaster risk in cities in section 4. The challenges in developing countries are exacerbated due to (a) large scale informality in land markets where poor people locate in slums that are close to hazard sources; (b) rent controls that reduce private incentives to invest in mitigation; and (c) limited coverage of basic public services such as sewers and drains that amplify the negative impacts of small scale hazards. Section 5 summarizes the main conclusions.

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Somik V. Lall

29/01/2010

29/01/2010

research

Urban Policy