- _Macro‐economic feedbacks_ (e.g., the impact of reduced final demand because consumers and businesses suffer from a reduced income, and the effect of lost tax revenue on public demand);

- _Long‐term adverse consequences on economic growth_ (e.g., due to changes in risk perception (including over‐reactions) that can drive investors and entrepreneurs out of the affected area);

- _Increased production from the “reconstruction boom”_ that acts as a stimulus for the economy.

Note that these output losses include household production, not only production by the productive and commercial sectors. For instance, the reduction in housing service (a service produced by houses and dwellings) is considered as an output loss, as are all services from other household assets (e.g., appliances).

_The impact on poverty or inequalities_ is also sometimes included in the indirect losses. The landfall of Katrina on New Orleans has renewed attention on the larger weather vulnerability of the poorest communities within a country, and on the inequality‐widening effect of disasters (Atkins and Moy, 2005; Tierney, 2006). Rodriguez‐Oreggia et al. (2009) show that municipalities affected by disasters in Mexico see an increase in poverty by 1.5 to 3.6 percentage points. Often, the poorest have little to lose in a disaster and the impact on their welfare is therefore invisible in aggregated economic statistics. If the aim of the assessment is to look at welfare impacts, focusing only on economic aggregates can be misleading.

Some of these impacts can be captured using classical economic indicators, such as Gross Domestic Product (GDP). There are however several issues when using GDP change as an indicator for output losses. A first question deals with the spatial scale: for large countries, the scale of the event and the scale of GDP measurement are very different, and a large shock for local populations can hardly be visible on national GDP. It does not mean, however, that welfare impacts are negligible. Second, GDP does not include non‐ market production and household production and therefore cannot capture a significant share of output losses. With a broader definition of output, it is possible to include at least some non‐market and non‐ commercial impacts. Third, GDP is known to be a poor proxy for welfare because it does not capture wealth (e.g., stocks of assets) and does not account for inequality and distributional effects (Fleurbaey, 2009).

# **2.1.2 Assessing indirect losses: Defining a baseline**

A first difficulty in disaster indirect 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 disaster). 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. Also, reconstruction can be used to develop new economic sectors, with larger productivity, and lead to a final situation that can be considered more desirable than the baseline scenario. This improvement can be seen as a benefit of the disaster. It is however difficult to attribute unambiguously 4