The project Socio-Economic Impacts contains several interlinked work packages on the socio-economic vulnerability of Istanbul:

  • financial risk estimation for the city economy caused by indirect economic losses. This research aims at integrating macro- and microeconomic modelling approaches while considering regional exchanges (Mechler, Borst).
  • assessing risk perception and evaluation of the population (Taylan) and in business (Menny, Inelmen)
  • macroeconomic instruments for risk mitigation: review of the effectiveness of the mandatory earthquake insurance scheme (TCIP) and of alternative financing mechanisms (Mechler)
  • microeconomic instruments for risk mitigation: design of microfinance instruments (especially microinsurance) for economic loss mitigation and financing (Menny)

Project description

Direct damages of a disastrous earthquake spread in space and time: as the access to resources like electricity, financial services, or employees is reduced by the loss of life of human beings and assets like buildings and machines, public and private life is interrupted. This affects the economic processes of adding value. Indirect losses are expected to spread increasingly with the proportion of critical infrastructure affected and the magnitude of interconnections within a megacity.

Considering the complex and dynamic linkages of the different interacting socio-economic factors within a megacity is crucial for a successful assessment and mitigation of its socio-economic vulnerability. Apart from the hazard the megacity is exposed to, this vulnerability is affected both by purely economic aspects and by cultural and psychological factors like individual and collective risk taking.

To understand the practices of earthquake risk management and for anticipating the acceptability of mitigation measures by the population and in business enterprises, risk perception and evaluation is investigated. This subproject also focuses on means to develop the risk awareness needed for a sustained and wide-spread support of mitigation measures, e.g. by using existing structures like community-based organisations. (Taylan, Inelmen, Menny).

An assessment of expected economic losses is essential for prioritizing mitigation measures based on cost-benefit analyses. So far, research has focused on direct losses due to earthquakes and no systematic analysis has been conducted regarding potential indirect economic losses occuring after a disastrous earthquake in Istanbul. Indirect losses, however, may noticeably exceed direct losses in case of a severe disaster. They are investigated within this project by a combination of top-down methods of macroeconomics and a microeconomic bottom-up approach. (Mechler, Borst)

There is a multitude of approaches to mitigate earthquake risk for Istanbul. From an economic point of view, their success depends on two preconditions: on the one hand this is the appropriate design of the instruments suggested regarding their effectiveness and acceptance by stakeholders. On the other hand, sufficient funds must be allocated requiring a solid financing scheme. Both aspects are dealt with in the two following subprojects of risk mitigation measures:

With respect to macroeconomic coping with earthquake losses, the mandatory insurance scheme (Turkish Catastrophe Insurance Pool TCIP) is investigated. Further macroeconomic financial instruments used on capital markets like cat bonds are considered, both as alternatives or complementary instruments to the original program. (Mechler)

On the microeconomic level, new microfinance instruments (especially microinsurance) are developed to overcome losses of individual economic subjects and, therewith, to reduce to total cost of risk from direct and indirect losses. Microinsurance has hardly been used so far for disaster loss financing.. (Menny)

Apart from that, it is planned to create an index based system for claims management of earthquake insurance by means of parameters which can be monitored objectively. It is supposed to allow a fairly accurate assessment of losses without local house-by-house inspections for each claim. This reduces the time frame between earthquake and insurance compensation which is crucial for a rapid reconstruction and rehabilitation of the city economy, thus diminishing indirect economic losses



Institute for Applied Systems Analysis (IIASA) Program on Risk and Vulnerability (RAV), Laxenburg, Austria
Center for Disaster Management (CENDIM), Bosphorus University, Istanbul
Kandilli Observatory and Earthquake Research Institute (KOERI), Bosphorus University, Istanbul
Society for Risk Analysis (SRA)
Disaster Prevention Research Institute (DPRI), Kyoto University, Japan
European Geosciences Union (EGU)