INTRODUCTION: PROBLEMS AND WEAKNESSES OF EX POST COMPENSATION MECHANISMS FOR NATURAL DISASTERS

Despite efforts to reduce greenhouse gas emissions, the climate is changing and will continue to change globally and in Europe. As is well known, climate change produces an increasing number of natural disasters leading to ever more victims and ever greater economic damage. Much of this damage concerns houses, whose vulnerability to extreme events depends above all on their location in dangerous areas and the use of poor-quality materials in their construction.

Faced with these increasing risks, governments often do not take ex ante mitigation measures, focusing on costly ex post interventions after every natural disaster. This short-sighted approach reflects, however, accurate political calculus: from a short-term perspective, precautionary expenditures produce immediate costs and pass mostly unnoticed. On the contrary, ex post intervention offers a great opportunity for political visibility and can be used as “a stage for political campaigns”; thus, as Michael Faure points out, politicians “have the tendency to play Santa Claus”, providing remarkable amounts of compensation for disaster-affected people.

This ex post compensation (and particularly ad hoc compensation) reveals several problems. First of all, it discourages people from adopting preventive measures to mitigate the risks, since they rely on government intervention. Secondly, ex post compensation could “exacerbate governments’ budget difficulties” and be no longer financially sustainable. Moreover, the so-called ex post Santa Claus payment reveals a high degree of inefficiency (in quantification and timing) and inequity (since it is usually funded from general taxation and therefore also paid for by non-owners of real estate). A related problem is the possible rise of negative distributional effects “since some victims (who probably purchased houses at low prices in flood prone areas) may free ride on other individuals (the general tax payers) who finance the ex post relief ”.

ROLE OF DISASTER INSURANCE AND OBSTACLES TO ITS SPREAD

There are obviously alternatives to this ex post compensation mechanism. First and foremost, governments should, as already mentioned, invest more in preventive measures (even if the opportunism of politicians hinders an effective preventive approach) and, in addition, encourage the development of insurance instruments in the field of natural disasters.