# **1. Introduction**

Natural disasters are frequent and hugely costly in terms of human life and household welfare. Just in 2015, the year of the massive Gorkha earthquakes in Nepal, 396 disasters were recorded worldwide with poorer nations accounting for 95 of the 119 countries affected (EM-DAT database, accessed in May 2016). Historically, developing countries have experienced 80 percent of the disasters recorded (Noy 2009). With a greater share of their population living in poverty, and with more limited fiscal space to cope, poorer nations are bound to experience greater hardship (Fomby, Ikeda & Loayza 2013). How much greater, however, is difficult to tell (Kliesen and Stuart Mill 1994).

The most obvious cost of a disaster stems from the human deaths and injuries it causes. Estimating this cost requires some measure of the statistical value of life, an issue with its own methodological challenges that this paper does not attempt to address.

Beyond these direct human impacts, disasters often result in a major fall in household welfare. Part of the fall stems from the destruction of dwellings caused by the disaster, and part of it is from its indirect consequences on economic activity and access to services. Sometimes these two components are called _damage_ and _loss_ , respectively. Boundaries between them are not always easy to delineate. Intuitively, however, mangled assets fall in the first category, whereas business disruptions belong in the second one (Hallegatte and Przyluski 2010).

The actual cost of a disaster could in principle be assessed through private insurance claims and government-provided emergency support, with the former yielding an estimate of damages and the latter of losses. However, formal insurance coverage is partial in developing countries, and government support in the aftermath of a disaster is most often insufficient. This kind of assessment would therefore result in gross underestimates. In the absence of direct information of the sort available in advanced economies, estimates of the cost of natural disasters in developing countries need to be based on other data sources, combined with defensible assumptions.

This paper proposes a rigorous approach to rapidly assess the cost of natural disasters and its distribution across localities and population groups, using a relatively limited information set. The proposed approach combines concepts borrowed from poverty measurement and urban economics. Its two key tenets are to focus on the value of dwellings and to explicitly model how this value is affected by disasters, both directly and indirectly.

Poverty analyses have shown that dwellings are not only an essential part of households’ wealth: they are also an important component of their utility and propensity to consume (Lipton and Ravallion 1995, Berger et al. 2018, and Ceriani et al. 2023). Housing constitutes a good proxy for households’ welfare and its distribution across households provides a credible measure of inequality in developing countries (Van der Weide et al. 2018). In the approach proposed by this paper, the value of dwellings is captured through _imputed housing prices_ – how much households think their homes are worth.

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