Association for Public Policy Analysis & Management

Panel: Dynamic Impact of Natural Disasters and Climate Risks: Evidence from the Private and Public Sectors

(Natural Resource Security, Energy and Environmental Policy)

Natural disasters cause tremendous economic losses and social disruptions across the United States. The economic shocks triggered by natural hazards are expected to grow in magnitude due to urbanization and development, population growth, and ongoing climate change. How to effectively manage the risks of natural disasters and long-term climate change is a critical question increasingly concerning both policy makers and academic researchers. Addressing this question also requires a solid understanding of the mechanisms through which these exogenous shocks affect economic activities and governmental resource allocations. This panel is comprised of four research papers examining the impacts of disasters and climate risks on various economic outcomes in the public and private sectors, with the goal of informing domestic disaster policy. These papers jointly use unique data sets (combining both survey and administrative data) to empirically estimate the post-disaster dynamics in the housing, public health sectors as well as state government finance.

 

The first paper estimates the impact of extreme weather shocks (flooding and hurricanes) on the availability of public housing using a panel data set of U.S. counties. Additionally, it evaluates whether post-disaster aid (more specifically, provided by the federal Public Assistance Program and Small Business Administration loans) alleviates the negative disaster shock to public housing. This research not only fills an important gap in the disaster literature but also sheds light on the relevance of disaster aid to the socially disadvantaged groups. Also focused on the housing market, the second paper examines how flood risk belief shapes residential location choices in Rhode Island. Using a unique survey data set, this paper suggests significant heterogeneity in flood risk beliefs and its relation to selection into coastal homes and housing prices. This paper provides important insights into the implication of climate belief on housing market volatility. The third paper looks at the long-run impact of natural disasters on public health. More specifically, the study uses the Medicare-related administrative data to estimate the changes in the health status and spending outcomes of the elderly living in New Orleans due to Hurricane Katrina. Finally, it is widely observed that natural disasters pose a severe burden on public finance by dampening the tax base and incurring additional disaster spending. The fourth paper employs a panel data set of U.S. states to examine the impact of natural disasters on the fiscal health of state governments, which is measured by multiple composite indexes constructed using spending, debt, and revenue data. The study is among the handful research attempting to evaluate the fiscal consequence of natural disasters. It also sheds light on the fiscal sustainability in the face of climate change.

 

All the four papers in this panel are linked by unifying theme related to the estimation of the dynamic impact of natural disasters. They provide rich empirical evidence on the post-disaster responses in both private and public sectors, which enable more informed cost-benefit analysis of public disaster programs, disaster budgeting, climate damage forecasting, and design of disaster aid and social safety net policy.