Ghesquiere, FrancisMahul, Olivier2012-06-062012-06-062007-09https://hdl.handle.net/10986/7331Economic theory suggests that countries should ignore uncertainty for public investment and behave as if indifferent to risk because they can pool risks to a much greater extent than private investors can. This paper discusses the general economic theory in the case of developing countries. The analysis identifies several cases where the government's risk-neutral assumption does not hold, thus making rational the use of ex ante risk financing instruments, including sovereign insurance. The paper discusses the optimal level of sovereign insurance. It argues that, because sovereign insurance is usually more expensive than post-disaster financing, it should mainly cover immediate needs, while long-term expenditures should be financed through post-disaster financing (including ex post borrowing and tax increases). In other words, sovereign insurance should not aim at financing the long-term resource gap, but only the short-term liquidity need.CC BY 3.0 IGOACCESS TO INSURANCEAGENTSAMOUNT OF RISKAPPLICATIONSASSET CLASSASSET CLASSIFICATIONAVALANCHESBALANCE SHEETBALANCE SHEETSBANK LOANBANK POLICYBASIS POINTBONDBOND ISSUERBOND ISSUESBOND MARKETBONDSBORROWING CAPACITYBUSINESS INTERRUPTION INSURANCECALL OPTIONCAPITAL MARKETCAPITAL MARKETSCASH FLOWCASH FLOWSCASH PAYMENTCATASTROPHE BONDCATASTROPHE BONDSCATASTROPHESCATASTROPHIC EVENTCATASTROPHIC EVENTSCATASTROPHIC INSURANCECATASTROPHIC LOSSESCATASTROPHIC RISKSCLAIM PAYMENTCOMMERCIAL DEBTCONTINGENT DEBTCONTINGENT DEBTSCOST OF CAPITALCOUNTRY RISKCOVERAGECREDIT LINECREDIT LINESCREDIT RISKCREDITORSDAMAGE ASSESSMENTDAMAGESDEBT BURDENDEBT OBLIGATIONSDEBT RESTRUCTURINGDEBT SERVICEDEBT SERVICESDERIVATIVEDERIVATIVE TRANSACTIONDEVASTATIONDEVELOPING COUNTRIESDISASTER EVENTDISASTER INSURANCEDISASTER PRONE COUNTRIESDISASTER RECONSTRUCTIONDISASTER RECOVERYDISASTER RISKDISASTER RISKSDISASTER SITUATIONDISBURSEMENTSDISCOUNT RATEDIVERSIFIED PORTFOLIODOMESTIC CREDITDOMESTIC DEBTEARTHQUAKEEARTHQUAKESECONOMIC RISKEMERGENCY ASSISTANCEEMERGENCY NEEDSEMERGENCY RECOVERYEMERGENCY RESPONSEEMERGING MARKETEMERGING MARKET COUNTRIESEXCISE TAXESEXPENDITUREEXPENDITURESEXTERNAL DEBTEXTERNALITIESFEDERAL RESERVEFEDERAL RESERVE BANKFINANCESFINANCIAL INSTRUMENTFINANCIAL INSTRUMENTSFINANCIAL MARKETSFINANCIAL SUPPORTFIREFISCAL POLICIESFLOODINGFLOODSGOVERNMENT ASSETSGOVERNMENT BUDGETGOVERNMENT CAPACITYGOVERNMENT DEFICITGOVERNMENT REVENUEGROSS DOMESTIC PRODUCTHOLDINGHOUSINGHURRICANEHURRICANESIMPACT OF DISASTERINDEBTEDNESSINDEMNITYINDEMNITY INSURANCEINFRASTRUCTURE LOANSINSTITUTIONAL INVESTORSINSTRUMENTINSURANCEINSURANCE CLAIMSINSURANCE COVERAGEINSURANCE INDUSTRYINSURANCE MARKETINSURANCE MARKETSINSURANCE PENETRATIONINSURANCE POLICYINSURANCE PREMIUMINSURANCE PREMIUMSINSURANCE PRODUCTSINSURED LOSSESINSURERSINTERNATIONAL BANKINTERNATIONAL CREDITINTERNATIONAL FINANCIAL MARKETSINVENTORYLANDSLIDESLEGISLATIONLEVEL OF DEBTLEVYLINES OF CREDITLIQUIDITYLIQUIDITY CONSTRAINTLIQUIDITY CONSTRAINTSLIQUIDITY CRISISLOANLOAN COMMITMENTSLOCAL BUSINESSESLONG-TERM RESOURCEMACROECONOMIC RISKMARKET INSTRUMENTSMATURITYMORAL HAZARDMUNICIPALITIESNATURAL DISASTERNATURAL DISASTERSNATURAL HAZARDSNEUTRALITYOPPORTUNITY COSTOPPORTUNITY COSTSPLEDGESPORTFOLIOPRESENT VALUEPRINCIPAL PAYMENTSPRIVATE CAPITALPRIVATE INVESTMENTSPRIVATE INVESTORSPROGRAMSPUBLIC ASSETSPUBLIC EXPENDITURESPUBLIC FINANCESPUBLIC INVESTMENTPUBLIC INVESTMENTSPUT OPTIONSRECAPITALIZATIONRECOVERY OPERATIONRECOVERY OPERATIONSREINSURANCEREINSURANCE CAPACITYREINSURANCE COMPANIESREINSURANCE MARKETSREINSURERSRELIEFRELIEF EFFORTSRELIEF OPERATIONRELIEF OPERATIONSREPAYMENTREPAYMENT OF PRINCIPALRESERVERESERVE FUNDRESERVE FUNDSRESERVESRETURNRETURNSRISK ASSESSMENTRISK AVERSIONRISK CAPITALRISK DIVERSIFICATIONRISK EXPOSURERISK INSURANCERISK MANAGEMENTRISK MITIGATIONRISK NEUTRALRISK PREMIUMRISK PROFILERISK REDUCTIONRISK TRANSFERSAFETYSAFETY NETSAFETY NETSSECURITIESSETTLEMENTSHORT-TERM LIQUIDITYSMALL BUSINESSSUB-NATIONAL ENTITIESSWAPSYSTEMIC RISKTAXTAX ADMINISTRATIONTAXATIONTERM STRUCTURE OF INTEREST RATESTIDAL WAVESTOTAL DEBTTOURISM TAXESTRANSACTIONTRANSACTION COSTSTRANSPORTTREASURYTREASURY BONDSTROPICAL STORMSUNDERLYING ASSETVOLCANIC ERUPTIONVOLCANIC ERUPTIONSWEALTH EFFECTWESTERN EUROPEWIND SPEEDWorld Bank10.1596/1813-9450-4345