Rules Rather than Discretion: Lessons from Hurricane Katrina

32 Pages Posted: 4 Sep 2006 Last revised: 8 May 2012

See all articles by Howard Kunreuther

Howard Kunreuther

University of Pennsylvania - Operations, Information and Decisions Department; National Bureau of Economic Research (NBER)

Mark V. Pauly

University of Pennsylvania - Health Care Systems Department; National Bureau of Economic Research (NBER)

Date Written: August 2006

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.

Suggested Citation

Kunreuther, Howard C. and Pauly, Mark V., Rules Rather than Discretion: Lessons from Hurricane Katrina (August 2006). NBER Working Paper No. w12503. Available at SSRN: https://ssrn.com/abstract=927387

Howard C. Kunreuther (Contact Author)

University of Pennsylvania - Operations, Information and Decisions Department ( email )

3730 Walnut Street
558 & 559 Jon M. Huntsman Hall
Philadelphia, PA 19104-5340
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212-854-0423 (Phone)
215-573-2130 (Fax)

National Bureau of Economic Research (NBER)

Mark V. Pauly

University of Pennsylvania - Health Care Systems Department ( email )

3641 Locust Walk
208 Colonial Penn Center
Philadelphia, PA 19104-6358
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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