Global Assessment Report on Disaster Risk Reduction 2015
Making development sustainable: The future of disaster risk management

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(Airmic Technical, 2013

Airmic Technical. 2013,Supply Chain Failures: A study of the nature, causes and complexity of supply chain disruptions, A report by Dr. Alan Punter on behalf of Airmic - Sponsored by Allianz Global Corporate & Specialty & Lockton. London.. .
). However, this risk does not affect businesses alone. It also impacts the national economies that receive investments (particularly when these are small and undiversified economies as in the case of SIDS), the small and medium enterprise sector that services larger businesses, and the labour force that may be affected either directly or indirectly (UNISDR, 2013a

UNISDR. 2013a,Global Assessment Report on Disaster Risk Reduction: From Shared Risk to Shared Value: the Business Case for Disaster Risk Reduction, Geneva, Switzerland: UNISDR.. .
). In otherwise attractive but hazard-prone locations, hidden contingent liabilities come bundled together with the comparative advantages offered to business investors.
Mispricing risk
Any risk offers opportunity and gain at the same time as it threatens to cause loss and negative impacts. The values assigned to disaster risk— and hence the way it is priced into decisions— always reflect a trade-off between opportunity and threat in the context of available information and the norms and rules societies use to socialize the gains or cover the costs. As such, there is a big difference between those who voluntarily bear risk in pursuit of opportunity and those who have to bear the costs involuntarily.
Currently, the absence of accountability in most societies in the face of both neglectful and deliberate risk generation means that consequences are rarely attributed to the decisions that generated the risks. At the same time, this lack of attribution creates perverse incentives for continued risk-generating behaviour. In effect, those who gain from risk rarely bear the costs. These costs are borne involuntarily by other social sectors and territories or transferred to the commons, where, as Chapter 12 highlights, they accumulate as unaccounted debt which neither the planet nor global society can continue to absorb.
There is also a lack of counterfactual evidence. At present, the business, economic, political and social case for disaster risk management still has to rely heavily on anecdotal substantiation and proxy indicators to prove its benefits for
economic growth, human and social welfare, and sustainable development. At the same time, the costs of the everyday and extensive risks faced by low-income households and small businesses are even less clearly understood than the costs of intensive risks. As a result, disaster risk continues to be mispriced at all levels: by small business owners, low-income households and local governments as well as large corporations, investors, high-income communities and national governments.
Excessive discounting of risk
In general, opportunities for short-term capital accumulation continue to outweigh concerns about future sustainability, resulting in a massive discounting of all future risk, including disaster risk. The inadequate pricing of disaster risk and of broader externalities in economic activity means that disaster risk is discounted excessively in order to maximize short-term gains (UNISDR, 2013a

UNISDR. 2013a,Global Assessment Report on Disaster Risk Reduction: From Shared Risk to Shared Value: the Business Case for Disaster Risk Reduction, Geneva, Switzerland: UNISDR.. .
). Moreover, there is no accountability for investments that generate disaster risks and are made by managers of large funds, banks, businesses and insurers, increasingly in cooperation with local and national governments (ibid.).
When risk management measures (including regulation and public investment) are seen to be applied inconsistently or incoherently, they can also act as disincentives (Burby, 2006

Burby, Raymond. 2006,Hurricane Katrina and the Paradoxes of Government Disaster Policy: Bringing About Wise Governmental Decisions for Hazardous Areas, Annals of the American Academy of Political and Social Science, Vol. 604, No. 1: 171-191.. .
; Bagstad et al., 2007

Bagstad, Kenneth., Stapleton, Kevin and D’Agostino, John. 2007,Taxes, subsidies, and insurance as drivers of United States coastal development, Ecological Economics, Vol. 63: 285-298.. .
). Examples can be found where local or national policies to attract investment and stimulate economic growth generate new risk or exacerbate existing risk, thereby directly contradicting policies for disaster risk reduction and undermining effective risk management, or vice versa (UNISDR, 2013a

UNISDR. 2013a,Global Assessment Report on Disaster Risk Reduction: From Shared Risk to Shared Value: the Business Case for Disaster Risk Reduction, Geneva, Switzerland: UNISDR.. .
; Stehr, 2006

Stehr, Steven. 2006,The Political Economy of Urban Disaster Assistance, Urban Affairs Review, Vol. 41, No. 4 (March): 492-500.. .
; Berke et al., 2014; Burby et al., 1999

Burby, Raymond J., Timothy Beatley, Philip R. Berke, Robert E. Deyle, Steven French, Da-vid R. Godschalk, Edward J. Kaiser, Jack D. Kartez, Peter J. May, Robert Olshansky, Robert G. Paterson and Rutherford H. Platt. 1999,Unleashing the Power of Planning to Create Disaster-Resistant Communities, Journal of the American Planning Association, Vol. 65, Issue 3: 247-258.. .
In many ways, the incentives for the financial sector to misprice disaster risk or other externalities outweigh any incentive not to do so. In this sector, profitability is based on volatility, while stability and security make it harder to generate
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