Academic journal article Business Economics

An Economist's Role in Disaster Mitigation at FEMA

Academic journal article Business Economics

An Economist's Role in Disaster Mitigation at FEMA

Article excerpt

Business Economics (2009) 44,

177-181. doi:10.1057/be.2009.17

Economists played their (1) first role in disaster mitigation fieldwork in 2004. As the first economist hired, I have had the opportunity to shape the role of economics at the Federal Emergency Management Agency (FEMA). My work has involved primarily benefit-cost analysis (BCA) for the Hazard Mitigation Grant Program (HMGP), but it also included writing an impact study on the effect of electric supply disruptions on the earnings of hourly workers in Florida after the 2004 hurricanes.

I have experienced many joys and frustrations. The most gratifying part is protecting people and their homes and property from future harm. The process can be slow at times; that can be the most frustrating part.

I joined FEMA in November 3, 2004. The impact study that I wrote prepared me to lead the BCA work for the mitigation branch at the Florida Recovery Office. My training in Economics also helped because I was able to understand, interpret, and apply economic theory inherent in BCA. I discuss the theories that FEMA uses in BCA below.

My work includes teaching, guiding, advising, reviewing, and leading others, including senior management and outside consultants. In the following pages, I explain why it is important to conduct BCA, the general elements of BCA, how it is applied at FEMA, and my experience

Why Conduct BCA?

Jules Dupuit, a French engineer, developed BCA in the 1800s. In the 1900s, people became concerned with the efficient allocation of government resources, and by the 1930s, the United States was using BCA in many areas, such as water projects constructed by the U.S. Army Corps of Engineers. Additional concern led the Office of Management and Budget (OMB) to issue Circular A-94 in 1972, requiring the use of BCA for federally funded projects for agencies within OMB's jurisdiction, such as FEMA.

Since then, the law giving the President authorization to provide funding for hazard mitigation, the Robert T. Stafford Act, mandates hazard mitigation projects be cost-effective. To determine "cost-effectiveness", FEMA uses BCA. Although BCA and cost-effectiveness analysis are different, we use the term, "cost-effective," to mean the benefits of a project are at least as great as the costs. Additionally, the code of federal regulations (CFR) that governs the HMGP, the 44CFR, requires projects be cost-effective.

There are two reasons for conducting BCA, according to OMB Circular A-94: cost-saving and market failure. As FEMA pays local governments for the repair of their buildings and roads after a disaster, money spent to reduce or eliminate this damage may save FEMA money. A study by the Multihazard Mitigation Council (MMC), titled An Independent Study to Assess the Future Savings From Mitigation Activities, indicates that every dollar FEMA spends on mitigation saves $4.00 in future spending.

The Elements of BCA

BCA is a way of looking at the costs and benefits of a project whose benefits and costs occur over time, and the entity benefitting from the project wants to account for benefits that accrue to it and others.

The private sector typically accounts for the costs and benefits to itself only. Government agencies typically want to account for the benefits to society because the project is being built to serve the public. Therefore, Circular A-94 states that BCA of federal projects must take into account the benefits to society, not just those to the federal government.

The other interesting twist to BCA is that the benefits being counted are not easily monetized in some cases. These "intangible" benefits, as some call them, are not traded in the market, so a dollar value has to be imputed in some cases, if possible.

For example, what is the value of a human life? Personally, I believe the value is infinite, but we clearly cannot spend the entire gross domestic product (GDP) to save one life. …

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