is also used to adjust for risk, such that higher than market rates reflect a _risk premium_ . Investments in new or unproven technologies are relatively more uncertain than others; these are characteristic of many of the larger DRM investments, which have to be customized. Another factor that translates into greater uncertainty surrounds the benefits of DRM. These benefits are the avoidance of lost profits, adjusted by the probability of occurrence of the disaster. These probabilities are highly uncertain, so the risk premium may be increased accordingly.

A major debate revolves around whether uncertainty reduces or merely postpones business investment. Doh and Pearce (2004) suggests that a context of continuous vs. discontinuous uncertainty makes a difference, with disasters clearly being in the latter category. A great deal of literature relates to regulatory uncertainty, which is also very applicable to disaster mitigation (e.g., building codes, zoning ordinances). Findings are mixed, however, on whether uncertainty inhibits forward movement (cf. Yang et al. 2004; Aragón‐Correa and Sharma 2003). Carrera et al. (2003) and others note ways of capitalizing on uncertainty, such as the advantages of being a “first‐mover” (another type of co‐benefit). Hoffmann et al. (2009) provide an example of three factors in a case study of German electric utilities facing climate change regulation as influencing forward progress on investment: 1) securing competitive resources, 2) leveraging complementary resources, and 3) alleviating institutional pressure.

# **3.2. Private Sector Investment Decisions in Relation to the Public Sector**

Although businesses continuously voice their support of free markets and opposition to government interference, most firms will work in a cooperative spirit if it is in their best interest. For enlightened business managers, best interest means not just short‐run maximization of profits, but also maintenance of the business’s image. Both of these factors augur well for businesses cooperating in sustainable development efforts.

Governments have led the charge to “mainstream” DRM into development planning, as exemplified by the Jamaica Case Study (ODI, 2014). That country has included a broad range of sectors and vulnerabilities into the plan, including transportation infrastructure, food security, ordinary flood protection, landslide risk reduction, and climate change. The Senegal Case Study (ODI, 2014) indicates a very broad approach in which the country’s National Platform brings together all ministries. At the same time, this case study notes shortcomings, including a lack of coherence among levels of government and an absence of the requirement of environmental impact assessments prior to the undertaking of major projects.

Public sector investment decisions are not dissimilar to the private sector at the core. Benefit‐cost analysis (BCA) is typically applied with the objective of maximizing the net present value of future returns. Given the uncertain nature of disasters, the benefit side of the ledger is often weighted by the probability of occurrence. In such an expected value setting, co‐benefits for extreme events can readily exceed direct benefits of DRM because the weights are so low (the events are so infrequent). It should be kept in mind, however, that with regard to other decision criteria, such as minimizing regret, the probabilities do not come into play, and the avoidance of disaster is the key factor.

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