Abstract
This paper presents a general equilibrium analysis of disaster policy
in a federation. The national government is postulated to offer
optimal disaster relief, a policy that creates moral hazards for
subnational government and private sector decisionmakers. In
equilibrium, subnational governments, which compete for mobile
productive resources, choose inefficiently low amounts of costly
disaster avoidance expenditures. This is true even when the national
government subsidizes these expenditures through conditional matching
grants, implying that national government mandates or direct control
over local policy may be required to achieve efficient disaster
avoidance.
JEL classification: H7; Q5; R5
Keywords: Disasters; Intergovernmental Fiscal
Relations; Regional Development .
David E. Wildasin / dew@davidwildasin.us
