remedies exist, including: stating in advance no additional aid will be reduced, land‐use planning that forbids development in the floodplain, and buying out of structures in the hazardous areas (the MMC study noted above found floodplain buyouts to have some of the highest benefit‐cost ratios).

Although businesses do not present as needy an image as a family that has been displaced from its home, businesses still seek and do not refuse disaster assistance, even if they are guilty of moral hazard. This ranges from the smallest businesses in developing countries to the largest corporation in industrialized ones, as evidenced in the aftermath of the financial meltdown leading to the Great Recession recently in the U.S.

Many well‐intended policies contribute to the moral hazard situation. For example, the Ministry of Finance and Public Credit in Mexico has implemented two major strategies: a) creation of a natural disaster fund and b) risk transfer through reinsurance and catastrophe bonds. The former sends a signal to potential disaster victims that they will be bailed out. The latter does not really reduce disaster risk, but simply spreads it out. This is not to say that the policies are not well‐intended or benefical, it is just that they have some features that do not reduce overall risk. At the same time, there are several ways to stem moral hazard, such as the deductibles in insurance policies or “index‐based” insurance, where protection is gauged in terms of factors that cause losses rather than the level of losses.

# **4.5. Distributional Considerations**

Often neglected in risk assessments is the distribution of costs and benefits. These are important for at least three reasons. First, numerous studies have determined that the least well‐off groups are those most vulnerable to disasters; moreover, their condition is exacerbated by disasters. Thus, disasters are a great concern from an equity, or fairness, standpoint. Second, lagging social economic groups or lagging regions have been found to represent a drag on economic growth and development. Third, identifying the impacts on various stakeholders provides insight into the motivations of government decision‐makers and the likelihood of support or lack of support for DRM policies. Distributional information can better inform stakeholders and thus enhance the public participation process, as well as serving as a predictive tool for the decisions the process is likely to yield. Used appropriately, distributional data can fill in many needed informational gaps and help lead to a more enlightened citizenry, and hence DRM more attuned to the needs of the public (Rose et al. 1989).

# 5. Co-Benefits of Public Sector Investment

# **5.1. Co‐Benefits to Society**

Not adequately considering co‐benefits of DRM is a major reason for underinvestment (Vorhies 2012). Public officials in general need to be better informed of these co‐benefits and need to do a better job of communicating them to their finance ministries and to the business community.

To expand on the discussion in the previous section, there are several reasons why even the knowledge of co‐benefits may not be sufficient for adequate public sector action. Such reasons come under the 16