The cost of doing nothing in the face of climate change: a case study, using the life satisfaction approach to value the tangible and intangible costs of flooding in the Philippines

ABSTRACT

The Intergovernmental Panel on Climate Change predicts that in the future typhoons and floods may become more intense and will occur more frequently in some regions. This prediction imposes an implicit continuum of choices on all, ranging from: do nothing (beyond the status quo) to further prepare (paying the costs as they occur); through to invest now (in, for example, flood mitigation infrastructure) in the hope that such investments will reduce damage later. Good choices require good information. In this paper, we provide an empirical demonstration of one method (the life satisfaction approach) for generating quantitative estimates of both the tangible and intangible cost of disasters – the cost of doing nothing (beyond the status quo). We use data collected from almost 400 households in a flood prone region of the Philippines, finding that from 2008 to 2013, flooding generated an average of US$86 per annum in financial damages for each household. Our model predicts that the average respondent would require a one-off payment of between US$2,577 and US$3,221 (3.5 to 4.4 times the average annual income) to ‘compensate’ them for the additional intangible costs of flooding. Estimated total compensation exceeds estimated financial damage by about 1/3 – suggesting that assessments, which do not account for intangibles may substantially underestimate the cost of doing nothing.

KEYWORDS:

• Disaster risk Management
• Economics
• Southeast Asia
• climate change

Acknowledgement

The authors would like to acknowledge the Department of Foreign Affairs and Trade (ALA Scholarship), James Cook University, University of the Philippines Visayas, and Skyrail Rainforest Foundation for their financial support. Earlier version of this manuscript was presented at the Asian Development Bank through the Visiting Fellowship Program. The authors want to express sincere gratitude to the anonymous reviewers for their useful insights and suggestions.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes on contributors

Cheryl Joy Fernandez is currently teaching economic analysis and management subjects at the University of the Philippines Visayas.

Natalie Stoeckl is an Adjunct Professor in the Division of Tropical Environments & Societies of James Cook University.

Associate Professor Riccardo Welters is an economist in the College of Business, Law & Governance at James Cook University.

ORCID

Cheryl Joy Fernandez http://orcid.org/0000-0001-5238-0701

Natalie Stoeckl http://orcid.org/0000-0001-5899-4771

Riccardo Welters http://orcid.org/0000-0001-7761-4949

Notes

1 As cited in Lasco and Delfino (2010)

2 Philippine LS studies are available (see works of Beja & Yap, 2013; Oh, 2014; Datu, King, & Valdez, 2016) but not in the context of disasters.

3 A few cross-country studies emphasise these differences (see Sarracino, 2013 and Di Tella et al., 2003).

4 More recently, especially after the Hyogo Framework of Action (2005–2015), many climate scientists have instead worked within the vulnerability paradigm (O'Keefe, Westgate, & Wisner, 1976; Hewitt, 1983; Wisner et al., 2004; Gaillard, 2010), which explicitly recognizes that people are ‘marginalized’ because of ‘imbalances of power’, ‘inequalities’, and ‘stratifications’ (Gaillard, 2010; Chen, Cutter, Emrich, & Shi, 2013) especially of differences in terms of their location (e.g. flood-prone area), social standing (e.g. indigenous people), economic status (e.g. poor), and politics (e.g. unheard sentiments). Researchers working within this paradigm study factors which improve our understanding of vulnerability, mostly by using case studies and other qualitative assessments (Usamah, Handmer, Mitchell, & Ahmed, 2014; Mallick, Rubayet Rahaman, & Vogt, 2011;) – although quantitative methods, such as the Social Vulnerability Index (or SoVI®) are also used (Shirley, Boruff, & Cutter, 2012; Chen et al., 2013). One notable limitation of this paradigm is the ‘unexpected successes’ that may arise from repeated experiences of people to hazards, such as long-term adaptation processes (Di Baldassarre et al., 2018), which was manifested in temporal migration in Bangladesh to reduce death tolls relating to hazards (Kreibich et al., 2017).

5 In our analysis, life satisfaction is a function of flood damages incurred in the last five years and not of their future flood damages. Hence, we are assuming that individuals are presbyopic i.e. reflective of the damages incurred in the past rather than the ones to occur in the future.

6 There are very few studies, which have successfully instrumented income: Ferreira and Moro (2010) (used social classes) and Oswald and Powdthavee (2008) (used ‘lagged income’, ‘dummy variable for observation of the paycheck,’ and ‘lagged regional house prices.’ That said, Luttmer’s (2005) and Pischke’s (2011) found that although estimates were different with and without instrumentation, these differences were not substantial.

7 Using the 2015 exchange rate, US$1=₱45.

8 Calculated from the published results that total damages at US$927,500 for 2,051 households.

Additional information

Funding

This work was supported by Department of Foreign Affairs and Trade, Australian Government: [Grant Number Australian Leadership Award]; James Cook University: [Grant Number Doctoral Support Grant]; Skyrail Rainforest Research Fund Grant: [Grant Number Student Research Grant]; University of the Philippines: [Grant Number Doctoral Dissertation Grant].