Should I stay or should I go: Modelling disaster risk behaviour using a dynamic household level approach

Freiberger, M., Hoffmann, R., & Fürnkranz-Prskawetz, A. (2024). Should I stay or should I go: Modelling disaster risk behaviour using a dynamic household level approach. IIASA Working Paper. Laxenburg, Austria: WP-24-010

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Abstract

In the last decades, many parts of the world faced an increase in the number of extreme weather events and worsening climate conditions endangering the livelihood of households in developing countries that rely on their local environment. While various empirical studies have identified key factors of exposure and vulnerability to disaster risk, we still lack a conceptual understanding of how these forces interact and how they impact household decision making. To gain insight into these mechanisms we set up a dynamic household model where households face environmental hazards. To respond to the risk, households can either relocate to a safer area or undertake preventive measures. Both actions require material and immaterial resources, which constrain the household's decision. Households are assumed to be heterogeneous with respect to key empirically identified factors for individual disaster risk: education, income, risk awareness, time preference and their access to preventive measures. This paper provides analytical insights into the short-run decision making of households derived from the theoretical framework as well as an extensive numerical investigation. To parameterize and calibrate the model we use data from Thailand and Vietnam. The roles of household characteristics on the short-term decision-making and long-run outcomes of households' well-being and disaster risk is discussed. We conclude the paper with an extensive evaluation of different policy interventions including housing and prevention cost subsidies as well as income transfers with respect to their heterogeneous effects on different sub-populations.

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