Post-disaster policies expose more people to disaster risk

Many countries provide relief funds to deal with the negative effects of catastrophic events on the local population and economy. In the United States, the Disaster Relief Fund, managed by the Federal Management Emergency Agency (FEMA), serves this purpose. Between 2001 and 2019, the U.S. federal government provided $ 296 billion in disaster relief for disasters.

Yet people are not moving away from risky areas. Between 2000 and 2020, counties hit by major hurricanes saw a significant population growth of 27.4%; In comparison, the continental U.S. coastal population grew by only 14.9%.

Post-disaster programs are a particularly important policy issue for many political candidates when major disasters occur during the election campaign. However, there is a trade-off between providing legitimate assistance to the affected population and encouraging more people and capital to live in dangerous areas.

In a recent study (Henkel et al. 2022), we identified the effects of electoral cycles on local post-disaster efforts and the results of the spatial distribution of economic activity in the United States. To this end, we use the time of hurricane landings, subject to election day, as an external change to natural disasters with greater electoral significance.1 Figure 1 shows the spatial distribution of hurricanes occurring more than a year before election day (i.e. ‘on-cycle’ hurricane) and election day (i.e. ‘off-cycle’ hurricane).

Figure 1 Geography of on-vs off-cycle hurricanes, 2001-2019

Our experimental results using county-level data between 2001 and 2019 are as follows. We use a flexible incident-study method to analyze local responses in counties affected by ‘on-cycle’ and ‘off-cycle’ hurricanes. In the specification of our choice, we compare with units that have not yet been treated. To account for the astonishingly heterogeneous nature of the treatment, we use the latest estimates from the differentiation literature (Callaway and Sant’Anna 2020).

First, we document that local governments spend more on tax collection after an ‘on-cycle’ hurricane than on an ‘on-cycle’ hurricane. The left panel of Figure 2 shows that aggregate spending at the local level increased faster than the taxes collected after an ‘on-cycle’ hurricane but not after an ‘off-cycle’. In the post-treatment period, expenses increased by an average of 2% faster than taxes, an increase of 4.5% after ten years. In short, our estimates indicate that government budgets and post-disaster efforts depend on the timing of disasters.

Figure 2 The impact of on-vs. off-cycle hurricanes on log net costs and log population

A) Impact on expenditure

B) Impact on population

At the same time, we note that disaster times are also important for population selection. The right panel in Figure 2 documents that the ‘on-cycle’ hurricane leads to a significant, immediate and long-term growth of the population, indicating that individuals pick up the affected area after the ‘on-cycle’ disaster. In contrast, the size of the overall population is not affected by ‘off-cycle’ hurricanes. The results indicate that the electoral incentives for post-disaster grants lead to an unintended consequence of population selection in the affected areas.2

Impact of post-disaster policy on the local economy

Post-disaster policies allow ‘on-cycle’ disaster-affected areas to spend more on high-quality public services than they could otherwise. However, all other regions will have to pay for post-disaster efforts due to the federal government’s balanced budget. Allocating resources to areas affected by ‘on-cycle’ disasters encourages people to pick in the affected areas, as shown in Figure 2. As a result, the electoral cycle could expose a large portion of the population to natural disasters in the long run.

How much higher post-disaster efforts come at the expense of lower national GDP? In our counterfactual practice, we compare the overall welfare and output effects of current post-disaster policies to situations where the electoral cycle or all post-disaster policies are removed. To measure and understand the impact of this new sorting pattern on the overall economy, we introduce a dynamic spatial common-balance model that integrates a relationship between political cycles and post-disaster policies. The model provides a simple setup for exploring the role of post-disaster policy and electoral incentives in the spatial distribution of economic activity.3

We calibrated the model for the United States in 2001, taking into account taxes and net transfers (including post-disaster grants) in different regions, as shown in the data,4 And take our model forward for 80 years.5 In our first counter-real situation, we removed the effects of post-disaster policy driven by electoral incentives by shutting down the additional effects of ‘on-cycle’ disasters. In our second counterfactual situation, we completely eliminate the impact of post-disaster programs on transfers and pregnancy facilities.

Current post-disaster policies improve welfare at the expense of overall GDP

Simulations reveal that a direct consequence of the current system is to push economic activity towards risk-prone coastal areas. We show that compared to the counterfactual situation, the current system, including post-disaster policy integrated electoral cycles, increases the population in some coastal areas by 7% in 80 years. Figure 3 illustrates the size ratio of the local population after 80 years in our baseline scenario, compared to our counterfactual; The impact of the electoral cycle (Panel A) and the complete closure of post-disaster policy (Panel B).

Figure 3 Impact of electoral cycle or post-disaster policy removal on population selection

A) There is no electoral cycle

B) There is no post-disaster policy

Figure 4 shows the impact of the current disaster post-disaster policies against the opposite realities of our welfare (panel A) and overall output (panel B). Immigration from overcrowded areas and high-quality facilities are important, as current disaster policies improve overall well-being, without accounting for other disasters. Figure 4 On the panel of documents that is in our baseline: welfare increases 0.82% after 80 years compared to our first scene and 2.10% compared to our second scene. However, these welfare improvements come at the expense of lower overall productivity and actual GDP at the national level (Panel B).

Figure 4 Impact of removal of electoral cycle or post-disaster policies on national productivity and welfare

A) Welfare

B) Real GDP

Intuitively, the improvement of maternity facilities driven by post-disaster efforts encourages the population to concentrate on coastal, suitable areas, which enhances overall well-being. As a result, migration from overcrowded areas due to disasters encourages these welfare improvements. However, this picking pattern leads to a loss of overall productivity due to these outflows from the most productive cities, resulting in a loss of overall output. Accounting for other consequences of climate change, such as sea level rise (Kocornik-Mina et al. 2016, Desmet et al. 2018b) will mitigate the welfare effects of post-disaster efforts due to the cost of exposure to other disasters. .

Our results expose the unintended consequences of post-disaster policies Current post-disaster policies are pushing economic activity towards risk-prone coastal areas. In times of climate change and increasing disaster risk, policymakers should be aware that current post-disaster programs can be costly due to the complex spatial response they cause.

References

Callaway, B, and PH Sant’Anna (2020), “Differences over Multiple Periods”, Journal of Econometrics 225 (2): 200-30.

Desmet, K, RE Kopp, SA Kulp, DK Nagy, M Oppenheimer, E Rossi-Hansberg and BH Strauss (2021), “Assessing the Economic Cost of Coastal Floods”, American Economic Journal: Macroeconomics 13 (2): 444–86.

Desmet, K, DK Nagy and E Rossi-Hansberg (2018a), “Geography of Development”, Journal of Political Economy 126 (3): 903–83.

Desmet, K, DK Nagy and E Rossi-Hansberg (2018b), “Adapt or Flood”, VoxEU.org, 2 October.

Emanuel, K (2011), “The effects of global warming on our hurricane damage”, Weather, climate and society 3 (4): 261–68.

Henkel, M, E Kwon and P Magontier (2022), “The Involuntary Consequences of Post-Disaster Policy for Spatial Selection”, CRED Research Paper No. 37, Universität Bern, Department Volkswirtschaft – CRED.

Henkel, M, T Seidel and J Suedekum (2021), “Financial Transfer to the Local Economy”, American Economic Journal: Economic Policy 13 (4): 433–68.

Knutson, T, Camargo SJ, Chan JC, Emanuel K, Ho CH, Kossin J, Mohapatra M, Satoh M, Sugi M, Walsh K et al. (2020), “Assessing Tropical Cyclones and Climate Change: Part 2: Estimated Response to Ethnic Warming”, Bulletin of the American Meteorological Society 101 (3): E303 – E322.

Kocornik-Mina, A, T McDermott, G Michaels and F Rauch (2016), “Does Flood Move Economic Activity to Safer Areas?”, VoxEU.org, 21 January.

Endnote

1 Election Day is held on the first Tuesday of November every two years and coincides with the general election of most federal offices. The US President is elected every four years and the US Congress is elected every two years. Hurricane season occurs between June and the end of October each year and so every year it is an important election issue. In addition, whether the timing of the hurricane coincides with election day is arguably extroverted, which gives us a sufficiently empirical setting for diversification in post-disaster policy efforts.

2 Importantly, these results remain qualitatively similar when using alternative estimators or control groups, when controlling storm intensity, or when considering other extended periods or other extreme natural disasters such as floods or wildfires. The use of alternative political dimensions (e.g., political alignment) instead of electoral cycles supports the assumption that electoral incentives strongly influence local selection patterns.

3 By doing this, we build on Desmet et al. (2018a, 2021) but make two critical amendments by adding public sector decisions (Henkel et al. 2021). First, the governments of each region provide local public services and redistribute resources across the jurisdiction of a financial transfer scheme. Second, the amount of relocation and subsequent pregnancy benefits that an area receives over a period of time depends on the impact of the disaster and the electoral cycle.

4 The initial situation of our model represents a spatial balance in the sense that utility has been leveled across space, and that individuals whose idiosyncratic positional preferences have been allowed are no longer motivated to move.

5 We use a ‘short’ simulation period to acknowledge the difficulty of distributing basic benefits in the distant future and simulating subsequent adaptation situations. We are also uncertain about the design of potential political and electoral institutions. Finally, given the recent climate change situation, the frequency and intensity of future hurricanes in the North Atlantic Basin is unlikely to change significantly for at least 50 to 100 years and is still a topic of discussion among meteorologists and climate scientists (Emanuel 2011, Nutson et al. 2020).

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