The Cost of Catastrophe: Climate Change Adaptation and Disaster Risk Financing in Developing Countries

Abstract

With climate change worsening the severity and frequency of certain natural disasters, governments of developing countries are now faced with an impossible dilemma: balancing the cost of recovery with preventative measures using their limited resources. By integrating adaptation investment into an ex ante evaluation of disaster risk financing instruments, we can directly compare the costs associated with quicker recovery and preventative measures. To assess these two factors, we propose seven strategies that incorporate the factors in different combinations and analyze their hypothetical impact in Jamaica, a small-island developing state prone to disaster. In a single year, adaptation provides consistent savings in disaster scenarios but is overshadowed by the efficacy of prioritizing quick-disbursing recovery options instead. Monte Carlo simulations that account for continued adaptation investment and project durability over 10 and 20 years showed overwhelming support for adaptation projects due to their substantial savings and greater ability to reduce variance over time compared to other strategies. Although other studies have confirmed the value of adaptation projects over time, this thesis contributes a new perspective by enabling governments to navigate the trade-off between adaptation investment and payments for post-disaster recovery instruments based on their risk profile and priorities.