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2021 | OriginalPaper | Chapter

1. Disaster Probability, Optimal Government Expenditure for Disaster Prevention and Mitigation, and Expected Economic Growth

Authors : Prof. Xianhua Wu, Prof. Ji Guo

Published in: Economic Impacts and Emergency Management of Disasters in China

Publisher: Springer Nature Singapore

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Abstract

As global climate warms, the occurrence frequency and loss of natural disaster are both increasing, posing a great threat to the sustainable development of human society. One of the most important approaches of disaster management is to prevent disaster and reduce disaster loss through fiscal expenditure of government; however, the optimal proportion of expenditure for disaster prevention and mitigation has always been a difficult issue that people concern about. First, this paper, after considering the impact of disaster on human capital, established a resident-manufacturer-government decision making model which contains the probability of disaster, and then solved the optimal proportion of government expenditure for disaster prevention and reduction as well as the expected economic growth rates under different conditions. Second, through numerical simulation method, this paper studied the impacts of such factors as coefficient of risk aversion and elasticity coefficient of substitution on the optimal proportion of disaster prevention and reduction expenditure. Third, through constant elasticity of sub-situation (CES) production function and ridge regression method, this paper verified the applicability of the proposed model with the data of the expenditures for disaster prevention and mitigation of Hunan Province in 2014. Finally, this paper summarized the research results and put forward corresponding suggestions on policy. The theoretical model proposed in this paper enriches the related researches of disaster economics, and the conclusions of empirical analysis can provide government departments with useful reference for the practice of disaster prevention and mitigation.

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next chapter A Multi-scale Periodic Study of PM2.5 Concentration in the Yangtze River Delta of China Based on Empirical Mode Decomposition-Wavelet Analysis

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The disaster loss ratio is from the assumption of Motoyama (2017):\(\left(h \right) = \frac{{\hat{d}}}{{1 - \hat{d}}} - \frac{{\hat{d}}}{{h - \hat{d}}}\), where \(\hat{d} = - \frac{{1 - \bar{d}}}{{\bar{d}}}\), \(\bar{d} \in \left({0,1} \right)\), \(\bar{d}\) is the upper limit of disaster loss ratio, \(D\left(0 \right) = \bar{d}\), the lower limit of the loss ratio is zero \(D\left(1 \right) = 0\), and \(h\) is the proportion of fiscal expenditure on disaster prevention and reduction.

To simplify the calculation process, here the rate of depreciation δ is assumed to be 1.

See Ma (2016) for the calculation of total factor productivity of technologically advanced region.

According to the researches of Qiu (2016) and Lou (2012), though there is a complementary relationship between private capital and government’s productive expenditure, the efficiency of government productive expenditure is decreasing, thus let \(x = 0.625\).

See Motoyama (2017) for parameter settings.

Due to the inconsistency in the statistical coverage of infrastructure expenditure in 2007 in the Finance Yearbook of China, the national budget in the stock of fixed assets is used as an alternative.

The data on the frequency of flood mainly come from the studies on the spatial and temporal distribution of flood in Hunan Province conducted by Wang et al. (2015) and Wang et al. (2003).

It is obtained by multiplying the probability of disaster in each of the 14 cities by the city’s GDP and then adding them up and dividing the sum by the total GDP of Hunan Province.

The benchmark interest rate of one-year deposit in 2014 is used as the basis for discount.

As some of the data on disaster prevention and reduction are unavailable, the proportion of investment in water conservancy construction and expenditures on agriculture, forestry and water affairs in the GDP of that year is regarded as the proportion of disaster prevention and reduction expenditure; the data come from Hunan Statistical Yearbook and China Water Statistical Yearbook 2011 (see A6.2 for the detailed data).

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Title: Disaster Probability, Optimal Government Expenditure for Disaster Prevention and Mitigation, and Expected Economic Growth
Authors: Prof. Xianhua Wu
Prof. Ji Guo
Publisher: Springer Nature Singapore
Book: Economic Impacts and Emergency Management of Disasters in China
Print ISBN: 978-981-16-1318-0

Electronic ISBN: 978-981-16-1319-7

Copyright Year: 2021
DOI: https://doi.org/10.1007/978-981-16-1319-7_1

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