HOUSEHOLDS' LIQUIDITY CONSTRAINT AND ECONOMIC VALUATION OF DISASTER MITIGATION

Abstract

The victims that their physical assets are damaged by a natural disaster may be requested to procure necessary financial resources from anancial bodies other than their own financial assets. But, if they are under the liquidity constraints, they can not procure the necessary funds; thus they may be damaged by the delay of the recovery processes. In this paper, the recovery behavior of a single victim household is formulated to investigate the economic loss driven either by the insufficient level of the assets rebuilt or by a delay in the recovery processes. The demand model for the disaster insurance is also formulated to investigate how the insurance money supplies the necessary liquidity for the recovery of the victims. Moreover, it is also investigated that the economic loss caused by liquidity constraints can be mitigated by the anti-disaster proof investment as well as public risk finance vehicles, and the economic evaluation method of the reduction of liquidity damage is presented.