Turkey earthquake: How are the true costs calculated?

A report published by the Turkish Enterprise and Business Confederation has put the cost of the earthquake in eastern Turkey at $84 billion (€80 billion), about 10% of Turkey's gross domestic product. About $70.8 billion is from the damage to homes, $10.4 billion from the loss of national income and $2.9 billion from the loss of working days. 

US data analytics firm Verisk put the economic losses at a minimum of $20 billion, while several other estimates lie in between. Assessing the damage caused by the earthquake in Syria will likely take longer. The scale of destruction may be of a similar magnitude but result in a far lower cost.

DW looks at how these earthquake calculations are made and explores why the estimates vary so much.

How to value a human life

There are generally two approaches to calculating the economic effects of such disasters, according to Melanie Gall from Arizona State University's Spatial Hazards Events and Losses Database for the United States (SHELDUS).

One is direct impacts, that is those immediately caused by the event such as damage to homes and injuries. Direct losses may be assessed by professional assessors hired by insurance companies, Gall told DW.

Indirect impacts are those that emanate from secondary or tertiary effects such as business losses during shutdowns, loss of income for workers, and people suffering from post-traumatic stress disorder (PTSD) — a mental condition that is triggered by a terrifying event. Such losses are usually calculated using economic models.

"For most events, these estimates are ballparked and do not come from professional estimators," Gall said.

Insurance companies and insurance trade associations typically make the first estimates, which focus on property damage. Insurers base these estimates on losses covered by insurance and then extrapolate them to include losses related to noninsured property.

Adam Rose, a senior research fellow at the Center for Risk and Economic Analysis of Threats and Emergencies at the University of Southern California makes such estimates. He leads a team that developed software for the purpose called Economic Consequence Analysis Tool, or E-CAT.

"Precise estimates of the cost of a given disaster can only be determined after a careful case study, which takes months or years to complete," Rose told DW.

Rose's software can be used once some basic information on the initial size of the disaster and rough estimates of the extent of resilience and behavioral responses become available.

"An issue here is valuing human life, which typically includes a large portion related to a person's earnings. These are lower in developing countries like Turkey, so sometimes translating distant injuries into dollars becomes problematic in those contexts," said Rose.

Categories evaluated are business interruption, the decrease in economic activity measured either in terms of lost revenue, or a combination of lost wages and profits as well as personal income or employment at the macroeconomic level.

"The above three categories do not include human misery, such as the number of people left without power or clean water," Rose added.

John Bateman, public affairs officer at the NOAA Satellite and Information Service in the US, also says that many costs are simply not counted.

These would include losses to natural capital or environmental degradation, mental or physical health care related costs and the value of a lost supply chain

"Therefore, our estimates should be considered conservative with respect to what is truly lost," he told DW. 

How accurate are the calculations?

According to Rose, the earliest estimates of a disaster's cost are often made within a few days, but they subsequently get refined as more data becomes available. "These initial estimates often omit damaged infrastructure, such as roads, bridges and utilities."

There is however a way analysts can also estimate those losses, Rose noted. They need to study and refine data collected by satellites and reconnaissance airplanes through a process called Earth observation. In addition, three more factors need to be considered, he said.

The first pertains to the multiplier effects that reverberate through supply chains. For example, earthquakes in Taiwan have in the past damaged semiconductor factories, disrupting the production of electronics in the US and elsewhere.

The second is how quickly and efficiently businesses get back on their feet after a disaster by relying on strategies such as relocating or consuming less water and power. Disaster recovery experts refer to this way of reducing the risks associated with a disaster's aftermath as "resilience."

The third has to do with what happens to people who live in disaster zones. If they flee the area on their own or after being forced to do so by government evacuation orders, the local economy loses its labor base, and demand for goods and services in the area declines. This also happens in cases like Turkey when people are afraid to return to work in buildings they believe rightly or wrongly to be vulnerable to collapse.

Poor suffer more

Rose pointed out that the cost estimates for natural disasters are often either "overestimated or underestimated by politics."

"While some suspect they are exaggerated in order to receive more aid and compensation, others suspect that governments underestimate costs to avoid embarrassment when a government or business policy may be at fault."

The insurer Swiss Re has found that the long-term development impacts of catastrophes usually depend on how direct losses lead to indirect and secondary costs and these depend on the country's economic capacity to absorb losses.

Research over the past 30 years has shown that it is generally the poor who tend to suffer more from disasters. Impoverished people are more likely to live in hazard-exposed areas and are less able to invest in risk-reducing measures. Poverty is both a cause and consequence of disaster risk.

According to UN Secretary-General Antonio Guterres, weak governance, growing poverty, biodiversity loss, collapsing ecosystems and unplanned rapid urbanization are all "interconnected drivers of disaster risk."

"And when disaster strikes, weak health systems and infrastructure leave them even more vulnerable. Decades of development gains can be wiped out in an instant," Guterres said late last year on the International Day for Disaster Risk Reduction.

Edited by: Uwe Hessler