Rules Rather Than Discretion: Lessons from Hurricane Katrina

Howard Kunreuther and Mark Pauly

No 12503, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper explores options for programs to be put in place prior to a disaster to avoid large and often poorly-managed expenditures following a catastrophe and to provide appropriate protection against the risk of those large losses which do occur. The lack of interest in insurance protection and mitigation by property owners and by public sector agencies prior to a disaster often creates major problems following a catastrophic event for victims and the government. Property owners who suffer severe damage may not have the financial resources easily at hand to rebuild their property and hence will demand relief. The government is then likely to respond with costly but poorly targeted disaster assistance. To avoid these large and often uneven ex post expenditures, we consider the option of mandatory comprehensive private disaster insurance with risk based rates. It may be more efficient to have an ex ante public program to ensure coverage of catastrophic losses and to subsidize low income residents who cannot afford coverage rather than the current largely ex post public disaster relief program.

JEL-codes: G22 H23 H44 (search for similar items in EconPapers)
Date: 2006-08
New Economics Papers: this item is included in nep-fin, nep-fmk, nep-ias and nep-pbe
Note: PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (86)

Published as Howard Kunreuther & Mark Pauly, 2006. "Rules rather than discretion: Lessons from Hurricane Katrina," Journal of Risk and Uncertainty, Springer, vol. 33(1), pages 101-116, September.

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