title: Infrastructure in developing and transition countries: risk and protection.
abstract: This article examines two possible strategies for financing post-disaster infrastructure rehabilitation in developing and transition countries: relying on ex ante financing instruments (including insurance, catastrophe bonds, and other risk-transfer instruments) and ex post borrowing or credit. Insurance and other ex ante instruments will increase a country's stability, especially if the government authorities have a difficult time borrowing or otherwise raising funds after a major disaster; however, these instruments have an opportunity cost and can reduce the country's economic growth potential. The cost-benefit tradeoff is therefore one between economic growth through infrastructure investment and added solvency and stability for the economy. This article develops a model to illustrate this tradeoff. The model, which views the infrastructure of a developing or transition country as a nondiversifiable portfolio that generates returns, can provide a basis for evaluating alternative financing options depending on the country's objectives in terms of growth, solvency, and stability.
authors.affiliation: IIASA, Laxenburg, Austria. pkfree@dimensional.com
authors.forename: Paul K
authors.initials: PK
authors.lastname: Freeman
authors.forename: Georg Ch
authors.initials: GCh
authors.lastname: Pflug