Munich Personal RePEc Archive

Are Private Defensive Expenditures against Storm Damages Affected by Public Programs and Natural Barriers? Evidence from the Coastal Areas of Bangladesh

Mahmud, Sakib and Barbier, Edward (2014): Are Private Defensive Expenditures against Storm Damages Affected by Public Programs and Natural Barriers? Evidence from the Coastal Areas of Bangladesh.

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Abstract

This paper introduces a household model of private investment in storm protection under an endogenous risk framework to determine how ex-ante self-protection and ex-post self-insurance spending by coastal households to mitigate storm-inflicted damages are affected by the availability of public programs and the presence of a mangrove forest. The theoretical results show that ex-ante publicly constructed physical barriers and mangroves are complements to self-protection but substitutes to self-insurance. However, ex-post public disaster relief and rehabilitation programs are substitutes to self-protection but complements to self-insurance. Our empirical analysis of coastal households in Bangladesh impacted by Cyclone Sidr reveals partial support for crowding out and crowding in effects of public investments and programs. Households located in a mangrove protected area invest more in self-protection and less in self-insurance. Other controls, such as household socioeconomic characteristics, also influence and add a degree of complexity to the relationship.

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