The Center for Economic Design has organized a Workshop, with the support of NATO, to set a national agenda for Turkey for establishing the necessary infrastructure in science, engineering, economics and risk management to properly assess and respond to Turkey’s significant problems of seismic hazards. The Workshop will take place during the period of June 22-24. Participation in the sessions on June 22 and 24 is by invitation only. SED participants with an interest in the economic design issues associated with mitigation and financing of seismic risks are welcome to attend the scientific sessions on June 23^rd, which are being held as part of SED-2000. The background and justification of the Workshop is described just after the formal program listing.

9:00 – 9:15 Introduction

Tuğrul Tankut, The Scientific and Technical Research Council of Turkey (TÜBİTAK), Ankara

Paul R. Kleindorfer, University of Pennsylvania, Philadelphia

9:15 – 10:30 Seismic Risk Assessment

Moderator: Joanna Papoulia, National Center for Marine Research, Athens

Moderator: Professor Gunay Özmen, ATA Construction Company, Istanbul

Moderator: Semih Koray, Bilkent University

Moderator: Seha Tiniç (Koç University)

• F. Bendimerad, Risk Management Solutions, Inc. Palo Alto, “Risk Quantification and Seismic Hazards in the Aegean Region”
• M. Erdik, Bogazici University, Istanbul, “Earthquake Risk Assessment and Mitigation in Istanbul”
• P. R. Kleindorfer, University of Pennsylvania, Philadelphia, “Establishing Insurance Markets for Seismic Risks”
• T.Tankut, Middle East Technical University, Ankara, “Structural and Educational Dimensions of Earthquake Mitigation in Turkey”
• H. Kunreuther, University of Pennsylvania, Philadelphia, “Public-Private Partnerships for Reducing Seismic Risk Losses”

• Joanna Papoulia, Institute of Oceanography,National Center for Marine Research, Athens, “Challenges in Marine Seismology in the Aegean Region”
• Rakesh Sarin, UCLA, Los Angeles, “A Social Decision Analysis of The Earthquake Safety Problem: The Case of Existing Los Angeles Buildings”
• Polat Gülkan, Middle East Technical University, Ankara, “Turkish Development Law No. 3194 and New Building Contruction Supervision in Turkey”
• Attila Ansal, Istanbul Technical University, Istanbul, “Micro-Zoning for Seismic Risk Quantification”

• Hasan Boduroglu, Istanbul Technical University, "Considerations behind Compulsory Insurance with Earthquake Coverage"
• Emil-Sever Georgescu, The National Building Research Institute, Bucharest, “Earthquake Risks and Insurance in Romania”
• A. Onculer, INSEAD, Fontainebleau, “Decision Processes of Homeowners in Adopting Risk Mitigation Measures”
• Ioannis Papadakis and William Ziemba, University of British Columbia, Vancouver, “Consequences of Earthquake Losses for Global Supply Chains: The Taiwan Experience”
• Andreas Richter, Hamburg University, Hamburg, “Alternative Risk Transfer Mechanisms for Seismic Risks”

The 1999 earthquake in the region of the Bay of Izmit in Turkey was a clarion call to review and reformulate Turkey’s policies towards earthquake hazards. As is well known to seismologists, Turkey is a very active region for earthquakes, and the last half century has seen a number of major earthquakes there with devastating consequences. The most recent event, which took place on the morning of August 16, 1999, and registered 7.4 on the Richter scale, led to more than 19,000 fatalities, and hundreds of thousands of displaced individuals and businesses, huge economic disruptions in a key economic region of Turkey, and continuing personal and economic costs of repair and rebuilding. The costs of this event alone will never be precisely known, but are currently estimated at over $15 billion. But one clear result of the Izmit earthquake of 1999 has been a recognition by government, industry and the public that the time is ripe for innovative proposals, attuned to Turkish cultural, political and economic realities, that can provide a framework to promote efficient mitigation and building standards. Moreover, using the tools of insurance and risk management, this framework must also address the means for financing these risks and paying for the inevitable damages that result from them. This Workshop intends to bring together experts from Turkey and elsewhere to determine the challenges that must be overcome to build a sustainable infrastructure in Turkey for dealing efficiently with its seismic hazards.

The key problem in earthquake mitigation and financing is to focus attention on decisions that will affect ultimate outcomes at the time when major resource decisions are made and not just in cleaning up the mess afterwards that results from bad prior decisions. Recognizing that the key issue is aligning incentives to undertake appropriate risk mitigation suggests using insurance, whether privately or publicly provided, and its sister disciplines of risk management and loss reduction, as a lever for efficiency. For areas or types of structures particularly subject to such damage, the cost or conditions associated with obtaining such insurance coverage will be high, reflecting the attendant risks. Coupled with established actuarial practices for risk assessment, this will lead to obvious pressures for risk mitigation in structures, location and emergency response. It will also lead to a greater awareness of what can be done to prepare for major seismic events.

While the ideas of risk quantification and loss reduction, including insurance, are not new, the problem is with the details, and these are likely to be quite specific to the country or jurisdiction in question. The first issue, of course, is the difficult and country-specific problems of establishing an accurate inventory of various property types by location and establishing vulnerability characteristics of each property type following via structural engineering. Other specific problems that attend this issue in Turkey include the following:

1. Many of the buildings in Turkey are quite old and enjoy, in this regard, considerable cultural value in themselves and, as an externality, in association with the characteristics of other buildings in their immediate neighborhood.
2. There are a number of peculiarities in the insurance industry in every country, and Turkey is no exception. Determining the appropriate fit between economic theory and existing insurance and risk bearing structures is obviously an important matter.
3. Socio-demographic characteristics differ greatly in different parts of Turkey. Thus, there may be significant problems in convincing property owners with significant budget constraints to pay for insurance. Subsidizing insurance is one approach, either locally or nationally (as is done, for example, with the U.S. Flood Insurance Program) clearly leads to moral hazard and may undermine the very incentives one is attempting to promote through an insurance-based program. If subsidies are pursued, there are a host of different designs possible for incorporating these. Finding a workable economic design that will provide meaningful incentives for different locales and socio-economic settings will be an important issue to study.
4. The political process at the municipal and regional level in Turkey is quite idiosyncratic and public officials have, on occasion, contributed to problem in bypassing or not enforcing safe building standards, even for new construction. Clearly, whatever economic instruments are proposed must be relatively robust to opportunities for political institutions to circumvent them.
5. It is likely that opening a large market by encouraging insurance in the construction sector should invite the interest of large foreign and multinational insurance companies to Turkey. It may be that the degree of competitiveness in the insurance business remains insufficient to obviate the need for reconsidering regulation in this sector.

Against this background, the Center for Economic Design at Bogazici University has organized a Workshop to set a national agenda for establishing the necessary infrastructure in science, engineering, economics and risk management to properly assess and respond to Turkey’s significant problems of seismic hazards. This Workshop would have the dual objectives of focusing the broad set of disciplines on this problem in Turkey and on determining near-term research, training and public policy objectives that would further the process of establishing a sustainable infrastructure for seismic hazard assessment and mitigation in Turkey. The Workshop would also consider broader infrastructure issues for the Aegean Region as a whole, as well as lessons from other countries around the Mediterranean.