TY  - GEN
AU  - Bolivar, Carlos
AU  - Dueñas, Federico
AU  - Valencia, Oscar
TI  - Natural Disasters, Adaptation and Default Risk
PY  - 2026
Y1  - 2026/09/23
DO  - 10.18235/0014514
AB  - This paper studies how sovereign default risk shapes public investment in climate adaptation. We build a sovereign default model in which governments invest in adaptation to reduce disaster damages. Sovereign risk depresses adaptation through two mechanisms: higher borrowing costs and debt overhang under long-term debt. These effects generate feedback between risk and disaster exposure. Using a new panel of adaptation spending from budget records, we show that after catastrophic disasters spreads rise where prior adaptation was low, and that losses are smaller where adaptation 
budgets recently increased. In our calibration, adaptation yields the largest welfare gains near the default boundary, where financing is tightest.
UR  - https://doi.org/10.18235/0014514
ER  -