Policy Trade-Offs in Building Resilience to Natural Disasters: The Case of St. Lucia

BY Alessandro Cantelmo; Leo Bonato; Giovanni Melina; Gonzalo Salinas


Resilience to climate change and natural disasters hinges on two fundamental elements: financial protection —insurance and self-insurance— and structural protection —investment in adaptation. Using a dynamic general equilibrium model calibrated to the St. Lucia’s economy, this paper shows that both strategies considerably reduce the output loss from natural disasters and studies the conditions under which each of the two strategies provides the best protection. While structural protection normally delivers a larger payoff because of its direct dampening effect on the cost of disasters, financial protection is superior when liquidity constraints limit the ability of the government to rebuild public capital promptly. The estimated trade-off is very sensitive to the efficiency of public investment.

This paper shows how far DGE modelling has strayed from studying business cycles in the US. This one is about studying climate change and natural disasters in a Caribbean island-state. D(S)GE is very broadly applicable and should be used more to study questions like these that have concrete policy applications.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: