https://www.youtube.com/watch?v=bnjQ3cV4x1I - PowerPoint Presentation

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https://www.youtube.com/watch?v=bnjQ3cV4x1ISlide2

When Disaster Strikes, What Can Government Do?

Lesson 3:

Hurricane Katrina

2005

Institutions:

the rule of law

Public Goods

Incentives & Information

San Francisco

Earthquake 1906Slide3
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Presidio Refugee Camp, 1906Slide7

Gov. George Pardee

Mayor Eugene SchmitzSlide8

1906, Congress: $2.5 million for San Francisco1950, Congress: Presidential declaration of “disaster area” (made at the request of state governor) triggers eligibility for federal funds to be used to repair and reconstruct infrastructure and public buildings 1969, Congress: Disaster Relief Act made federal aid available to individuals buildings.1979, Executive Order: President Jimmy Carter created FEMA, the Federal Emergency Management Administration2008 FEMA budget = $8.2 billion.2015 FEMA budget request $10.38 billionFederal Disaster SpendingSlide9

Select the alternative with the greatest excess of benefits over costsThe rule applies in the public sector just as it does in the private sector.Review/Reminder: Rule of Rational Choice?

Question:

For what activities do the benefits of government action in disasters outweigh the costs, and why?Slide10

For what types of activities are governmental institutions well-suited?Maintaining and enforcing the rule of lawSlide11

Looting Isn’t NewSlide12

Maintaining Law & Order in ChicagoSlide13

Law & Order key to quick recovery. . .

Chicago 1872

Chicago 1890

Chicago, 1907Slide14

. . . Or not:Slide15

Law & Order Facilitates Disaster Recovery

Reducing uncertainty facilitates individual decision-making.Slide16

Businesses are less likely to return and rebuild if instability and uncertainty persist.

Law & Order Facilitates Disaster RecoverySlide17

Civic order and dependable rule of law attract other social institutions to return to the community.

Law & Order Facilitates Disaster RecoverySlide18

Government Shapes the Rules of the Game

Changing the rules of the game can aid disaster recovery

when those changes facilitate adaptation to specific conditions created by the disaster and when there is a reasonable expectation that the changes are temporary accommodations that will speed up the return to normalcy.

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When disaster strikes, what can government do?Re-establish order, maintain and enforce the rule of lawProvide public goodsSlide20

Public goodsNon-exclusiveNon-rivalrousFor what types of activities are governmental institutions well-suited?Publicly-provided goods

Paid for by tax revenue

Will You Pay?

Free-rider problemSlide21

Public goodsNon-exclusiveNon-rivalrousFor what types of activities are governmental institutions well-suited?Publicly-provided goods

Paid for by tax revenue

Free-rider problemSlide22

Providing public goodsNon-exclusiveNon-rivalrous

For what types of activities are governmental institutions well-suited?Slide23

Public goods & servicesNon-exclusiveNon-rivalrous(Publicly-provided goods are not always public goodsPaid for with tax revenue)For what types of activities are governmental institutions well-suited?

emergency rescue

debris clean-up

bridge & highway repair

public order & safety

protecting property

housing victims

feeding victims

recovery planning

Public

or

Publicly-Provided ?Slide24

The Disaster of Government Disaster Mitigation

“The slow and seemingly inept responses of government at all levels both in preparation for and recovery from [Hurricane Katrina] infuriated Americans.”

Emily Chamlee-Wright & Daniel Rothschild: “Disastrous Uncertainty. . . “

Questions:

Is someone to blame?

The problem of

expected

benefits and

expected costsPerhaps our expectations should be re-examinedSlide25

Information & Incentives

Proposition:

Governments’ poor performance in disaster relief is best explained not by reference to lack of compassion or to venal and/or incompetent officials, but instead by the centralized nature and the incentives that accompany government decision-making.

What we shouldn’t ask government to do, and why.

Note to Self:

Check the incentives

created by the

rules of the gameSlide26

Problem: Information Transfer in Centralized Institutions

No effective mechanism (like price in markets) to gather and transmit fragmented, chaotic, and dispersed information from the disaster area to the decision-makers

People familiar with local conditions, needs, and available resources are not likely to be involved in the decision-making

FEMA Note to Self:

When Disaster

Strikes,

Turn On TV ! ! ! Slide27

Problem: Information Transfer in Centralized Institutions

Bureaucratic institutional structure is characterized by detailed procedures, strict protocols, and line-of-command decision-making.

effective mechanism for institutions without the motivating incentive of profit.

create incentives for employees to contribute to the task of the agency.

Those who follow procedures accrue benefits and those who do not bear costs.

(James Buchanan, Public Choice Theory)Slide28

Problem: Information Transfer in Centralized Institutions

The political process lacks a feedback loop from the victims to the decision-makers responsible for allocating resources in disasters.

FEMA trailers

the Ice fiasco . . .

goes on and on and on . . .

HERE!

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Problem: Incentives

Incentives for elected and appointed government workers encourage poor resource use

Moral Hazard

Exists when people are shielded from the full costs of risk

Exists in both the private and public sectors

Insurance, for example

Private sector has incentive to mitigate; public sector does not

Example:

1998 Am Geophysical Union study: from 1970-98 drastic rise in disaster relief costs : people moving

into

high risk regions

NOT a

character

indictmentSlide30

Problem: Incentives

Incentives for elected and appointed government workers encourage poor resource use

Good Samaritan Effects

The distortion in decision-making that occurs when people come to expect generous disaster assistance

Exists in both public and private (non-profit charities) sector

(charity hazard)

NFIP – National Flood Insurance Program – federal program for homeowners in river flood-plains or flood-prone coastal areas

Voluntary, 13% purchase

Can buy after the fact

1/3 total payments to 3% claimants

NOT a

character

indictmentSlide31

DebbieSlide32

When Disaster Strikes, What Can We Do?

Lesson 4:

Comparative advantage

Competition & non-profits

Institutions:

personal

v.

impersonal

(commercial) interactions Money

Role of banks and the FEDSlide33

Non-profits: Comparative Advantage

Decentralized: Effective transmitter of signals between interested 3

rd

parties who want to help and individuals and small groups wanting assistance

Evidence:

For profit companies channel their charitable

contributions through established relief organizations

Indonesian Tsunami relief: $700 million private-sector corporate donations funneled through Red Cross, UNICEF & other established organizations

Wal-Mart: $20m to Red Cross & Salvation Army, in-kind donations through established shelters

Salvation Army representative of advantages:

Already present in communitiesDaily experience with people in distressPremium on training people in advanceSlide34

card

A Tale of Two Debit CardsSlide35

Non-profits Operate in a Market-Like Atmosphere

Charities compete for donations

Not as strong as pure profit & loss, but stronger than gov’t

Competition is facilitated by feedback similar to markets

Donors’ self-interest: I want my money to be used well

Competition for donations is heightened by modern communication technology,

BBB Wise Giving Alliance

CharityWatch.org

Charity Navigator

Bernadine Healy

"Forced Out"Slide36

The Best Way for Individuals to Help

Channel assistance through established organizations with good records

Send money !

the Second

Disaster !Slide37

$$$ The Power of Money $$$

Relief professionals can purchase the “right stuff”

Remember:

You didn’t know about the elephants and the turkey roasting pans. The local culture and environment matters.

Money is a magnet; it will draw in goods and services

Money donations don’t use resources like transportation and storage

Pumping cash back into disaster-stricken areas facilitates economic recovery

Yes, money is impersonal – and that’s its chief virtue!