The European Union Solidarity Fund

This paper examines the legitimacy, viability and efficiency of the European Union Solidarity Fund by asking whether the Fund meets its stated purpose of providing solidarity within the EU, whether it is sufficiently capitalized and if it promotes disaster risk reduction in Europe. In examining these questions, we make use of ADAM models of disaster risks throughout Europe. We conclude that the Solidarity Fund falls short on all three counts, and we suggest possible alternatives. Most far-reaching, we explore whether the EUSF could support insurance systems in Europe by, among other possible activities, capitalizing national public-private insurance programs and providing support for government risk transfer. This would leverage the Fund’s capital and would overcome barriers to the provision of private and public sector insurance in uncertain catastrophe markets. It would also make insurance more affordable to Europe’s most vulnerable communities. Finally, it would reduce the disincentives for risk reduction inherent in post-disaster assistance.     

Exploring public perception of environmental technology over time

This paper analyses how new information shapes public perception of a controversially discussed technology over time. The test case analysed in this paper is solar radiation management (SRM), a potentially risky, environmental engineering technology, which aims to fight climate change by the injection of sulphate aerosols into the stratosphere. Using panel survey data, we show that most respondents initially show strong negative emotions towards SRM and reject the technology. However, public perception is not stable over time as emotions cool off and acceptance increases. The increase in acceptance is greater, the longer the cooling-off period between two surveys. Furthermore, we show that the cooling-off effect is more pronounced for more impulsive respondents.     

Sovereign financial disaster risk management: The case of Mexico

In 2006, Mexico became the first transition country to transfer part of its public-sector natural catastrophe risk to the international reinsurance and capital markets. The Mexican case is of considerable interest to highly exposed transition and developing countries, many of which are considering similar transactions. Risk financing instruments can assure governments of sufficient post-disaster capital to provide emergency response, disaster relief to the affected population and repair public infrastructure. The costs of financial instruments, however, can greatly exceed expected losses, and for this reason it is important to closely examine their benefits and alternatives. This paper analyzes the Mexican case from the perspective of the risk cedent (the Ministry of Finance and Public Credit), which was informed by analyses provided by the International Institute for Applied Systems Analysis (IIASA). The rationale for a government to insure its contingent liabilities is presented along with the fiscal, legal and institutional context of the Mexican transaction. Using publicly available data, the paper scrutinizes the choice the authorities faced between two different risk-transfer instruments: reinsurance and a catastrophe bond. Making use of IIASA's catastrophe simulation model (CATSIM), this financial risk management decision is analyzed within the context of a public investment decision.