drought. With this definition, the reduction in agriculture yield, and in farmer income, are considered as direct costs, consistent with intuition, while the impacts on other economic sector trading with the agri‐ cultural sector are indirect costs.

Indirect losses can be market or non‐market losses (see f.i., Government of Queensland, 2002). Some‐ times, non‐monetary indirect consequences of disasters are also included, like the impact on poverty or inequalities, the reduction in collected taxes, or the increase in national debt.

In more general terms, several issues are raised by the use of GDP change as an indicator to assess indi‐ rect losses. These issues are, among others, (i) the question of appropriate scale between the scale of the event and the scale of GDP measurement, (ii) the capacity of GDP to be a good proxy for welfare (see, e.g., CMEPSP, 2009; Council and European Parliament, 2009).

# **2.2 Definition and assessment purpose**

These possible definitions of indirect losses create specific difficulties. For instance, indirect losses can have “negative‐cost” components, i.e. gains from additional activity created by the reconstruction. These gains can be realized in the affected region (e.g., in the construction sector) or in another region (e.g. because it captures market shares lost by the affected region).

Another difficulty in disaster cost assessment lies in the definition of the baseline scenario. The cost of the disaster has indeed to be calculated by comparing the actual trajectory (with disaster impacts) with a counterfactual baseline trajectory (i.e., a scenario of what would have occurred in the absence of a disas‐ ter). This baseline is not easy to define, and several baselines are often possible. Moreover, in cases where recovery and reconstruction do not lead to a return to the baseline scenario, there are permanent (positive or negative) disaster effects that are difficult to compare with a non‐disaster scenario.

For instance, a disaster can lead to a permanent extinction of vulnerable economic activities in a region, because these activities are already threatened and cannot recover, or because they can move to less risky locations. In that case, the disaster is not a temporary event, but a permanent negative shock for a region and it is more difficult to define the disaster cost. Also, reconstruction can be used to develop new economic sectors, with larger productivity, and lead to a final situation that can be considered more de‐ sirable than the baseline scenario. This improvement can be seen as a benefit of the disaster. It is howev‐ er difficult to attribute unambiguously this benefit to the disaster, because the same economic shift would have been possible in absence of disaster, making it possible to get the benefits without suffering from the disaster‐related human and welfare losses.

Most importantly, defining the cost of a disaster cannot be done independently of the purpose of the assessment. Different economic agents, indeed, are interested in different types of cost. Insurers, for instance, are mainly interested in consequences that can be insured. Practically, this encompasses mainly the cost of damages to insurable assets (e.g., damaged houses and factories), and short‐term business interruption caused by the disaster (e.g., the impossibility to produce until electricity is restored).

4