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Are private defensive expenditures against storm damages affected by public programs and natural barriers? Evidence from the coastal areas of Bangladesh

Published online by Cambridge University Press:  01 August 2016

Sakib Mahmud  and
Edward B. Barbier
Sakib Mahmud
Affiliation:
Department of Economics, University of Wisconsin-Superior, University of Wisconsin-Superior, Erlanson Hall 301, Belknap and Catlin Ave, PO Box 2000, Superior, WI 54880, USA. E-mail: smahmud@uwsuper.edu
Edward B. Barbier
Affiliation:
Department of Economics & Finance, University of Wyoming, USA. E-mail: ebarbier@uwyo.edu
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Abstract

This paper introduces a household model of private investment in storm protection under an endogenous risk framework to determine how defensive self-protection and self-insurance expenditures by coastal households to mitigate storm-inflicted damages are affected by the availability of public programs and the presence of a mangrove forest. The theoretical results show that publicly constructed physical barriers and mangroves encourage self-protection but discourage self-insurance expenditures. However, public disaster relief and rehabilitation programs lead to the crowding-out of self-protection but the crowding-in of self-insurance. Our empirical analysis of coastal households in Bangladesh impacted by Cyclone Sidr reveals partial support for the crowding-out and crowding-in effects of public investments and programs. Households located in a mangrove-protected area invest more in self-protection and less in self-insurance. Other controls, such as household socio-economic characteristics, also influence and add a degree of complexity to the relationship.

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Type
Research Article
Information
Environment and Development Economics , Volume 21 , Issue 6 , December 2016 , pp. 767 - 788
Copyright
Copyright © Cambridge University Press 2016 

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