Disaster Relief as Bad Public Policy
Shughart, William F., Independent Review
There are classes of problems that free markets simply do not deal with well.
- Thomas Schelling1
At first blush, disaster relief belongs to a class of problems ill suited for privatemarket solution. It seems obvious that coordinated emergency responses on a scale and scope far beyond the capacities of individual actors, charitable organizations, and even local and state governments are indispensable when Mother Nature strikes with the wrath of a Hurricane Camille, Andrew, or Katrina, when levee breeches cause massive flooding of towns and farmland along the upper Mississippi Valley, or when tornadoes and earthquakes shatter lives and wreck property in the blink of an eye. Disaster relief arguably is, in short, something of a public good that would be undersupplied if responsibility for providing it were left in the hands of the private sector. If this line of reasoning is sound, the activity of the Federal Emergency Management Agency (FEMA) or something like it is a proper function of the national government.
But I don't think that it is. A pure public good is both nonrival in consumption (that is, one person can consume the good without reducing the amount available for others to consume) and nonexcludable (that is, access to the good cannot be denied to anyone, including individuals who have not contributed to financing its provision). Weather forecasts (Ewing, Kruse, and Sutter 2007, 319), national defense, and some types of intellectual property qualify by that definition; other examples are difficult to come by. Indeed, the private sector in fact successfully supplied the stereotypical pure public good - the coastal lighthouse (see, for example, Sidgwick 1901, 406) - for decades (Coase 1974).
In this article, I argue that even if disaster relief is thought of as a public good - a form of "social insurance" against fire, flood, earthquake, and other natural catastrophes - it does not follow that government provision is the only or necessarily the best option. Indeed, I show that both economic theory and the historical record point to the conclusion that the public sector predictably fails to supply disaster relief in socially optimal quantities. Moreover, because it facilitates corruption, creates incentives for populating disaster-prone areas, and crowds out self-help and other local means of coping with disaster, government provision of assistance to disaster's victims actually threatens to make matters worse.
Disaster relief is a bad public good for several reasons. First, the immediate task required of first responders is to supply what are essentially private goods. Rescuing survivors from the rooftops of flooded homes and businesses or digging them out of the rubble are rivalrous activities. Everyone in immediate danger cannot be moved to safety simultaneously; when a rescue crew is working to locate survivors at one disaster scene, others necessarily must wait their turns. Emergency-relief supplies, such as drinking water, meals ready to eat, blankets, and temporary housing likewise are fully private goods, whose consumption by one victim reduces the amount available for all. The critical responsibility of first responders to natural disaster is to mobilize and distribute such aid rapidly, but the mass distribution of private goods is not an activity in which government has a distinct comparative advantage.
Second, both the modern theory of property rights (De Alessi 2001 ) and publicchoice reasoning emphasize that governments, like markets, can fail to produce ideal results and, moreover, that government failure occurs not because of differences in the motives of the actors in the public and private sectors - all are assumed to pursue their self-interests rationally - but rather because the institutions that govern collective action differ in important ways from the ones that organize private action. Several implications for disaster preparedness and disaster relief follow directly from recognition of the differences in the incentives and constraints that face private- market participants, on the one hand, and public officials, on the other. …