The peculiar economics of disaster

Most supply and demand problems facing an area hit by a natural disaster are generally short-run in nature because of the aid forth-coming from outside regions. Even when the threat of shortages does exist, the concern of residents in the community for the plight of others helps to minimize serious problems during the emergency period. From the economic point of view it is important to note that post-disaster behavior by individuals helps to eliminate a source of demand for some commodities, thereby tending to keep prices lower than they would be if the same conditions of scarcity arose in a more normal impersonal market situation. Thus, if people remain with friends and relatives, a large demand for housing is temporarily taken off the market, and pressure on rents is minimized. Possible food shortages are avoided for the same reason — residents respond to urgings not to hoard and are easily satisfied with substitute products when their first choice is out of stock. Realtors and store owners are also hesitant to raise rents or food prices during the emergency period; in fact, selective reductions are often put into effect temporarily. These short-term response patterns indicate that sociological and psychological factors change to utility functions of residents during the short-run period and thus explain why economic behavior following a disaster appears at first glance to be somewhat peculiar. Copyright the Thomas Jefferson Center for Jefferson Center for Political Economy, Rouss Hall, University of Virginia 1967