Integrated Modeling of Spatial and Temporal Heterogeneities and Decisions Induced by Catastrophic Events

Ermolieva, T.Y., Fischer, G., & Obersteiner, M. ORCID: https://orcid.org/0000-0001-6981-2769 (2003). Integrated Modeling of Spatial and Temporal Heterogeneities and Decisions Induced by Catastrophic Events. IIASA Interim Report. IIASA, Laxenburg, Austria: IR-03-023

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Abstract

This paper discusses an integrated model capable of dealing with spatial and temporal heterogeneities induced by extreme events, in particular weather related catastrophes. The model can be used for quite different problems which take explicitly into account the specifics of catastrophic risks: highly mutually dependent losses, inherent capacity of information, the need for long-term perspectives (temporal heterogeneity) and geographically explicit analyses (spatial heterogeneity) with respect to losses and gains of various agents such as individuals, governments, farmers, products, consumers, insurers, investors, and their decisions on coping with risks. We illustrate emerging challenging decision-making problems with a case study of severe floods in a pilot region in the Upper Tisza River. Special attention is given to the evaluation of a flood loss-spreading program taking explicitly into account location specific distributions of agricultural and structural losses. This enables us to evaluate premiums, insurance coverage, and governmental compensation schemes minimizing, in a sense, the risk of locations to overpay actual losses, risks of bankruptcy/insolvency for insurers, and overcompensation of losses by the government. GIS-based catastrophe models and stochastic optimization methods are used to guide policy analysis with respect to location-specific risk exposures. We use special risk functions in order to convexity discontinuous insolvency constrains.

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