Density and Disasters: Economics of Urban Hazard Risk

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.