The Unintended Consequences of Post-Disaster Policies for Spatial Sorting

99 Pages Posted: 5 Oct 2022 Last revised: 23 Mar 2023

See all articles by Marcel Henkel

Marcel Henkel

University of Bern - Department of Economics

Eunjee Kwon

Sogang University - Department of Economics

Pierre Magontier

University of Bern; University of Barcelona - Barcelona Institute of Economics (IEB)

Date Written: October 4, 2022

Abstract

Post-disaster aid aims to relieve affected communities, but excessive bailouts may encourage economic activity to remain in exposed areas. We provide new empirical and theoretical evidence on the spatial consequences of post-disaster policies related to political motives. Using the exogenous variation in the timing of natural disasters, we show that hurricanes close to Election Day lead to increased post-disaster efforts at the local level and result in increased population sorting into the impacted areas. To quantify and comprehend the implications of this new sorting pattern for the aggregate economy, we introduce the relationship between electoral cycles and post-disaster policies as a new feature in a dynamic spatial general equilibrium model. We show that households respond to current post-disaster policies by sorting in hazard-prone coastal areas. In the short run, current post-disaster policies improve aggregate welfare at the expense of large overall GDP and productivity losses.

Keywords: Natural Disasters, Political Budget Cycles, Spatial Sorting

JEL Classification: Q54, D72, H53, H84

Suggested Citation

Henkel, Marcel and Kwon, Eunjee and Magontier, Pierre, The Unintended Consequences of Post-Disaster Policies for Spatial Sorting (October 4, 2022). MIT Center for Real Estate Research Paper No. 22/08, Available at SSRN: https://ssrn.com/abstract=4237083 or http://dx.doi.org/10.2139/ssrn.4237083

Marcel Henkel

University of Bern - Department of Economics ( email )

Schanzeneckstrasse 1
Bern, CH-3001
Switzerland

Eunjee Kwon

Sogang University - Department of Economics ( email )

Pierre Magontier (Contact Author)

University of Bern ( email )

Gesellschaftsstrasse 49
Bern, BERN 3001
Switzerland

University of Barcelona - Barcelona Institute of Economics (IEB) ( email )

c/ John M. Keynes, 1-11
Barcelona, 08034
Spain

HOME PAGE: http://pierremagontier.com

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