The cost of doing nothing in the face of climate change: a case study, using the life satisfaction approach to value the tangible and intangible costs of flooding in the Philippines

The Intergovernmental Panel on Climate Change predicts that in the future typhoons and floods may become more intense and will occur more frequently in some regions. This prediction imposes an implicit continuum of choices on all, ranging from: do nothing (beyond the status quo) to further prepare (paying the costs as they occur); through to invest now (in, for example, flood mitigation infrastructure) in the hope that such investments will reduce damage later. Good choices require good information. In this paper, we provide an empirical demonstration of one method (the life satisfaction approach) for generating quantitative estimates of both the tangible and intangible cost of disasters – the cost of doing nothing (beyond the status quo). We use data collected from almost 400 households in a flood prone region of the Philippines, finding that from 2008 to 2013, flooding generated an average of US$86 per annum in financial damages for each household. Our model predicts that the average respondent would require a one-off payment of between US$2,577 and US$3,221 (3.5 to 4.4 times the average annual income) to ‘compensate’ them for the additional intangible costs of flooding. Estimated total compensation exceeds estimated financial damage by about 1/3 – suggesting that assessments, which do not account for intangibles may substantially underestimate the cost of doing nothing.