Abstract
Although major disasters like the 2005 Gulf Coast hurricanes are
infrequent, they dominate empirical loss distributions, as illustrated
by a statistical analysis of flood losses in Louisiana. Extraordinary
Federal emergency assistance has shifted a large portion of the burden
of the 2005 floods to the rest of society, relieving financial stress
in the disaster-stricken region but raising serious questions about
the incentives for subnational governments to implement costly but
efficient disaster avoidance policies in the future. The Federal
government cannot credibly commit not to insure losses from future
disasters, nor can it efficiently assume responsibility for land use,
economic development, and other state and local government policies
that affect disaster risk. Mandatory disaster reserves provide an
alternative policy option through which actuarially-fair Federal
insurance could credibly strengthen the incentives for efficient
subnational government disaster policies.
JEL classification: H7; Q54; Q58
Keywords: Disaster Policy; Extreme Values; Intergovernmental
Fiscal Relations.
David E. Wildasin / dew@davidwildasin.us
