IPCC_Managing Risks of Extreme Events.pdf - Climate Access

Determinants of Risk: Exposure and VulnerabilityChapter 2Governance is also a key topic for vulnerability and exposure.Governance is broader than governmental actions; governance can beunderstood as the structures of common governance arrangements andprocesses of steering and coordination – including markets, hierarchies,networks, and communities (Pierre and Peters, 2000). Institutionalizedrule systems and habitualized behavior and norms that govern societyand guide actors are representing governance structures (Adger, 2000;Biermann et al., 2009). These formal and informal governance structuresalso determine vulnerability, since they influence power relations, riskperceptions, and constitute the context in which vulnerability, riskreduction, and adaptation are managed.Conflicts between formal and informal governance or governmentaland nongovernmental strategies and norms can generate additionalvulnerabilities for communities exposed to environmental change. Anexample of these conflicts of formal and informal strategies is linked toflood protection measures. While local people might expend resourcesto deal with increasing flood events (e.g., adapting their livelihoods andproduction patterns to changing flood regimes), formal adaptationstrategies, particularly in developing countries, prioritize structuralmeasures (e.g., dike systems or relocation strategies) that have severeconsequences for the vulnerability of communities dependent on localecosystem services, such as fishing and farming systems (see Birkmann,2011a,b). These conflicts between formal and informal or governmentaland nongovernmental management systems and norms are an importantfactor that increase vulnerability and reduce adaptive capacity of theoverall system (Birkmann et al., 2010b). Countries with institutional andgovernance fragilities often lack the capacity to identify and reducerisks and to deal with emergencies and disasters effectively. The recentdisaster and problems in coping and recovery in the aftermath of theearthquake in Haiti or the problems in terms of managing recovery andemergency management after the Pakistan floods are examples thatillustrate the importance of governance as a subject of resilience andvulnerability.In some developed countries, the last 30 years have witnessed a shift inenvironmental governance practices toward more integrated approaches.With the turn of the century, there has been recognition of the need tomove beyond technical solutions and to deal with the patterns anddrivers of unsustainable demand and consumption. This has resulted inthe emergence of a more integrated approach to environmentalmanagement, a focus on prevention (UNEP, 2007), the incorporation ofknowledge from the local to the global in environment policies(Karlsson, 2007), and co-management and involvement of stakeholdersfrom all sectors in the management of natural resources (Plummer, 2006;McConnell, 2008), although some have also questioned the efficacy ofthis new paradigm (Armitage et al., 2007; Sandstrom, 2009).2.5.3. Economic DimensionsEconomic vulnerability can be understood as the susceptibility of aneconomic system, including public and private sectors, to potential(direct) disaster damage and loss (Rose, 2004; Mechler et al., 2010) andrefers to the inability of affected individuals, communities, businesses,and governments to absorb or cushion the damage (Rose, 2004).The degree of economic vulnerability is exhibited post-event by themagnitude and duration of the indirect follow-on effects. These effectscan comprise business interruption costs to firms unable to accessinputs from their suppliers or service their customers, income losses ofhouseholds unable to get to work, or the deterioration of the fiscalstance post-disasters as less taxes are collected and significant publicrelief and reconstruction expenditure is required. At a macroeconomiclevel, adverse impacts include effects on gross domestic product (GDP),consumption, and the fiscal position (Mechler et al., 2010). Key driversof economic vulnerability are low levels of income and GDP, constrainedtax revenue, low domestic savings, shallow financial markets, and highindebtedness with little access to external finance (OAS, 1991; Bensonand Clay, 2000; Mechler, 2004).Economic vulnerability to external shocks, including natural hazards,has been inexactly defined in the literature and conceptualizationsoften have overlapped with risk, resilience, or exposure. One line ofresearch focusing on financial vulnerability, as a subset of economicvulnerability, framed the problem in terms of risk preference andaversion, a conceptualization more common to economists. Riskaversion, in this context, denotes the ability of economic agents toabsorb risk financially (Arrow and Lind, 1970). There are many ways toabsorb the financial burdens of disasters, with market-based insurancebeing one, albeit prominent, option, although more particularly in adeveloped country context. Households as economic agents often useinformal mechanisms relying on family and relatives abroad or outsidea disaster area; governments may simply rely on their tax base orinternational assistance. Yet, in the face of large and covariate risks,such ad hoc mechanisms often break down, particularly in developingcountries (see Linnerooth-Bayer and Mechler, 2007).Research on financial vulnerability to disasters has hitherto focusedon developing countries’ financial vulnerability describing financialvulnerability as a country’s ability to access domestic and foreignsavings for financing post-disaster relief and reconstruction needs inorder to quickly recover and avoid substantial adverse ripple effects(Mechler et al., 2006; Marulanda et al., 2008a; Cardona, 2009; Cumminsand Mahul, 2009). Reported and estimated substantial financialvulnerability and risk aversion in many exposed countries, as well as theemergence of novel public-private partnership instruments for pricingand transferring catastrophe risks globally, has motivated developingcountry governments, as well as development institutions, NGOs, andother donor organizations, to consider pre-disaster financial instrumentsas an important component of disaster risk management (Linnerooth-Bayer et al., 2005).There is a distinct scale aspect to the economic dimension of exposureand vulnerability. While evidence of the economic costs of knowndisasters indicate impacts may be under 10% of GDP (Wilbanks et al.,86