Impact of Behavioral Issues on Green Growth Policies and Weather-Related Disaster Reduction in Developing Countries

Established in 1984, the Wharton Risk Management and Decision Processes Center develops and promotes effective corporate and public policies for low‐probability events with potentially catastrophic consequences through the integration of risk assessment, and risk perception with risk management strategies. Natural disasters, technological hazards, and national and international security issues (e.g., terrorism risk insurance markets, protection of critical infrastructure, global security) are among the extreme events that are the focus of the Center's research. The Risk Center's neutrality allows it to undertake large‐scale projects in conjunction with other researchers and organizations in the public and private sectors. Building on the disciplines of economics, decision sciences, finance, insurance, marketing and psychology, the Center supports and undertakes field and experimental studies of risk and uncertainty to better understand how individuals and organizations make choices under conditions of risk and uncertainty. Risk Center research also investigates the effectiveness of strategies such as risk communication, information sharing, incentive systems, insurance, regulation and public‐private collaborations at a national and international scale. From these findings, the Wharton Risk Center's research team – over 50 faculty, fellows and doctoral students – is able to design new approaches to enable individuals and organizations to make better decisions regarding risk under various regulatory and market conditions. The Center is also concerned with training leading decision makers. It actively engages multiple viewpoints, including top‐level representatives from industry, government, international organizations, interest groups and academics through its research and policy publications, and through sponsored seminars, roundtables and forums. Abstract: This paper focuses on how one can change the way developing countries prepare for disasters so they are better equipped to sustain economic growth. We discuss the importance of considering the goals of key decision makers and the need to understand the perceptions, systematic biases and heuristics used by the relevant interested parties (e.g., the affected public, private and public sector organizations, NGOs) in choosing among alternatives. The paper highlights the importance of undertaking benefit-cost analysis to evaluate disaster risk reduction measures, recognizing that decision makers might not make meaningful use of this policy tool given their behavioral biases and simplified heuristics. To address these issues, we propose green growth strategies that involve multi-year contracts coupled with short-term incentives that have a chance of being implemented. The strategies focus on the role of multi-year micro-insurance, long-term loans, and multi-year catastrophe bonds that reflect the institutional arrangements of in the developing country. We illustrate …