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Coordination in disaster: Nonprice learning and the allocation of resources after natural disasters

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Abstract

Most economists agree that the price system offers the best method for allocating scarce resources among competing ends. Yet, churches, nonprofits, governments, and corporations in disaster-stricken communities, often under voluntary or mandated price freezes, must often rely on nonprice responses to meet short-term, localized shifts in demand. Evidence suggests that the private sector outperforms the public sector at this task. This paper explores how private sector organizations, both nonprofit and for-profit, learn about and respond to community needs in the aftermath of disasters. We explain and demonstrate how organizations observe credible signals of shifts in demand without the aid of prices. Our findings expand our understanding of why public sector disaster recovery efforts tend to be less effective than private sector efforts. We also find that price gouging laws have additional negative consequences beyond the standard economic account.

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Notes

  1. Field interviews in Joplin and Tuscaloosa were conducted between September 2011 and February 2012 under a protocol approved by the Institutional Review Board at Troy University.

  2. The problems revealed in Katrina were not new; FEMA’s response to Hurricane Andrew in 1992 was also criticized as slow and ineffective (Pielke and Pielke 1997, 10–13).

  3. Because government agencies rely on tax dollars and do not have to compete for donations, selection should increase the relative effectiveness of private versus public sector responses.

  4. Concern over the potential for price gouging often implicitly assumes highly inelastic postdisaster demand as well.

  5. The costs would be small relative to the operations of a major retailer. Maintaining prices while meeting disaster-induced demand could be also viewed as a form of corporate advertising or analogous to charitable contributions to earn goodwill (Samuels and Puro 1991). Walmart instituted a price-freeze policy in 2004 to specifically avoid accusations of price gouging following natural disasters (Rosegrant 2007a).

  6. See Rosegrant (2007b) for a discussion of FEMA’s attempt to prepare for hurricanes during the 2006 season.

  7. See http://www.nvoad.org/

  8. See http://tide.com/en-US/about-tide/loads-of-hope

  9. See https://www.duracell.com/en-us/program/duracell-powerforward/

  10. http://blog.al.com/tuscaloosa/2012/02/habitat_for_humanity_tuscaloos.html

  11. http://www.charitytracker.com/

  12. See the application form available at www.disasterassistance.gov. Much Stafford Act aid goes to local governments and not individuals, while other individual assistance is available via low interest loans from the Small Business Administration.

  13. See http://www.nj.com/news/index.ssf/2016/04/7_charged_with_hurricane_sandy_fraud.html

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Authors and Affiliations

  1. Manuel H. Johnson Center for Political Economy, Troy University, 600 University Ave., Troy, AL, 36082, USA

    Daniel Sutter & Daniel J. Smith

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  1. Daniel Sutter
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  2. Daniel J. Smith
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Correspondence to Daniel Sutter or Daniel J. Smith.

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This paper uses field interviews conducted in Joplin and Tuscaloosa that were conducted between September 2011 and February 2012 under a protocol approved by the Institutional Review Board at Troy University. The financial support for the field work conducted by the authors was generously provided by the Mercatus Center at George Mason University. The authors thank two anonymous referees for providing helpful comments.

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Sutter, D., Smith, D.J. Coordination in disaster: Nonprice learning and the allocation of resources after natural disasters. Rev Austrian Econ 30, 469–492 (2017). https://doi.org/10.1007/s11138-016-0369-5

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