Potential for application of a probabilistic catastrophe risk modelling framework to poverty outcomes : general form vulnerability functions relating household poverty outcomes to hazard intensity in Ethiopia

This paper analyzes the potential to combine catastrophe
risk modelling (CAT risk modeling) with economic analysis
of vulnerability to poverty using the example of drought
hazard impacts on the welfare of rural households in Ethiopia.
The aim is to determine the potential for applying a
derived set of damage (vulnerability) functions based on
realized shocks and household expenditure/consumption
outcomes, onto a forward-looking view of drought risk.
The paper outlines the CAT risk modeling framework and
the role of the vulnerability module, which describes the
response of an affected exposure to a given hazard intensity.
The need to explicitly account for different household characteristics
that determine vulnerability within our model
is considered, analogous to how a CAT risk model would
differentiate damage functions for buildings by different
classes of construction. Results for a regression model are
presented, estimating ex-post drought impacts on consumption
for heterogeneous household types (e.g. with cattle,
safety-net access, illness). Next, the validity/generalizability
of the derived functions are assessed, to infer applicability
of the derived relationships within a CAT risk modelling
framework. In particular, the analysis focuses on external
validity: whether the relationships established in the dataset
can be used for forecasting outside of the sample used for
analysis. The model is stress-tested using statistical methods
of resampling. This involves randomly splitting the data
into “training” and “testing” datasets. The tests show consistency
of results across the datasets. Finally, future plans
are outlined with regard to developing a fuller catastrophe
risk model to combine with the consumption results.