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Global change in the form of climate warming and population movements to vulnerable regions will likely contribute to the already increasing economic losses from natural dizasters. In this paper, we show that despite a large insurance industry, extensive government programs and international aid, the victims, and especially those in the poor countries, continue to bear the major share of these losses. We argue on grounds of fairness and efficiency that governments, in co-operation with the private insurance industry, have legitimate role in spreading the losses from natural dizasters in the form of post-dizaster aid. In fact, there are potentially large global welfare gains in improving the risk-spreading capacity of governments together with private insurers. Moreover, there are large economic gains in improving the role of the government in repairing infrastructure after a dizaster event. For purposes of financing dizaster aid programs and repairing public infrastructure damage, we examine the potential of catastrophe bonds and other alternative risk transfer mechanisms as an instrument to ensure sufficient and timely capital to the responsible public authorities in the wake of a dizaster...

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Bibliographic Reference: Article: Geneva Papers on Risk and Insurance: Issues and Practices
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