Mercatus Research Area

The National Insurance Consumer Protection Act’s Potential Impact on the Social Resiliency of Hazard-Prone Regions

David C. Marlett — Wed, 17 Jun 2009 18:49:42 GMT

The ability of communities to recover from disasters depends on a well-functioning property insurance market. However, many states insurance markets are substantially distorted or are hobbled by excessive regulation.

As a solution, there has been proposed an Optional Federal Charter (OFC) system, under which insurers would be able to opt into a federal regulatory system, leaving behind the system of patchwork state regulations.

The merits of moving toward federal regulation have been debated for many years to try and alleviate some of the problems of current regulatory systems. The most common model in recent years is the Optional Federal Charter (OFC). This approach would provide insurers the option of obtaining either a state or a federal charter.

This paper discusses the benefits and problems with both the state-based and federal-based regulatory systems and suggests that, if policy makers choose to proceed with an Optional Federal Charter system, they should focus attention on:

1. Minimizing political risk,
2. Allowing competitive rating and minimizing rate suppression,
3. Minimizing the immediate impact on policy holders, and
4. Maintaining the antitrust exemption.

The Long Road Back: Signal Noise in the Post-Katrina Context - Working Paper

Emily Chamlee-Wright — Tue, 21 Jul 2009 14:10:17 GMT

On August 29, 2005, the nation watched as Hurricane Katrina pummeled the Gulf Coast, inflicting more than $100 billion of property damage across broad swaths of Louisiana, Mississippi, Texas, and Alabama and ultimately claiming more than 1,600 lives. In the wake of this catastrophic destruction, hopeful signs of community resilience appeared. Within days of the storm, many residents along the Mississippi Gulf Coast had come home and begun to rebuild. Soon after floodwaters had receded from devastated St. Bernard Parish, district officials announced they would reopen a school by November 14 and pledged to serve any child who returned to the community. In New Orleans East, members of the Vietnamese-American community organized to gut, clean, and restore their homes and businesses, despite being told by city officials that it was unlikely they would be allowed to rebuild. Impressive as these and other efforts were, however, one cannot help but ask why, despite the community resilience visible in some areas, the overall pace of recovery has been so desperately slow.

Reversing a Rising Tide: Goals for Reforming the Texas Windstorm Insurance Association

Daniel Sutter — Thu, 11 Jun 2009 20:32:02 GMT

Designed to be insurers of last resort, state residual markets are now the largest insurers in many coastal areas. One such organization, the Texas Windstorm Insurance Association (TWIA), is one of seven staterun residual market mechanisms for hurricane wind coverage. The two hurricanes which struck Texas in 2008 cost TWIA almost $3 billion and revealed the association’s unsound financial basis and desperate need for reform.

Private Solutions to Public Disasters: Self-Reliance and Social Resilience

Daniel J. Smith, Peter Boettke — Tue, 28 Jul 2009 20:25:06 GMT

Profit-seeking entrepreneurs are vital to any recovery process. Entrepreneurs must be able to unrestrictedly allocate land and labor resources to their most urgent employments, as expressed by customers through prices. Any interference with the structure of prices distorts the signals that entrepreneurs receive, misdirecting or hampering their efforts. Misallocation of resources can literally be a matter of life and death in the immediate aftermath of a natural disaster or war. Price ceilings dampen the ability of profits to induce increased supply of needed goods and services, and distort the ability of prices to signal consumers to ration and economize scarce resources. Poor policy unnecessarily blocks and inhibits the labor and capital adjustments necessary for a complete and timely recovery by distorting entrepreneurial calculation and preventing entrepreneurs from allocating resources to their most productive uses.

Despite having their plans frustrated through the regulations and uncertainty created by government action, humankind has still demonstrated a remarkable resilience following a natural or manmade disaster. We argue that this is due to the civilizing and coordinating roles played by civil society. For-profit companies, charities and churches play a vital role in the recovery process. These organizations have proven to be the first, and most well equipped responders to disasters, jump starting the recovery process.

Policy Uncertainty and the Market for Wind Insurance

Daniel Sutter — Wed, 10 Jun 2009 19:13:25 GMT

Since Hurricane Katrina hit the Gulf Coast in 2005, critics have suggested that rising homeowners insurance costs in some areas are due to market inefficiency or herding behavior by insurers. Alternatively, insurers could be reducing exposure to hurricane losses due to new information or because of uncertainty due to enacted or contemplated regulatory or policy actions.

Herding behavior creates a policy rationale for public insurers of last resort or policies to prevent panicked exit by insurers after hurricanes. This paper tests the herding thesis empirically and finds that, while many insurers have raised premia since 2005, there is little evidence of herding behavior. Uncertainty in regulation and public policy are likely the significant drivers of rising costs and decreased availability rather than irrational herding by insurers. Policy implications of this finding are discussed.

Occupational Licensing and Asymmetric Information: Post-Hurricane Evidence from Florida

David B. Skarbek — Fri, 15 May 2009 21:12:43 GMT

Click Here for Article

Skarbek, David. "Occupational Licensing and Asymmetric Information: Post-Hurricane Evidence from Florida." Cato Journal 28, no. 1 (Winter 2008): 73-82.

Federal, state, and county governments accept the argument that occupational licensing protects consumers and improves their welfare. This argument stands in stark contrast to the apparent rent seeking that occurs with licensing. In return for gains from state-created barriers to entry, coalitions built along occupational lines support politicians.

This article will show that government action in times of crisis is often inconsistent with its rhetoric. Licensing is typically justified on the grounds that market mechanisms will not mitigate the problems associated with asymmetric information. In the wake of Hurricanes Frances and Katrina, Florida reduced restrictions on construction contractors, yet in times of crises informational asymmetries are more likely to be problematic. By examining the volume of work completed, I find little evidence of significant detrimental effects from the policy change. Given the relative success of reducing restrictions and the government's explicit recognition of licensing's limiting effect on the availability of roofers, reform of licensing, at least to the extent done in crisis, should be adopted permanently.

Market Failure and Natural Disasters: A Reexamination of Anti-Gouging Laws

David B. Skarbek — Tue, 21 Jul 2009 15:53:40 GMT

David B. Skarbek 2008-08-15 206:Journal Articles This article will show that government action in times of crisis is often inconsistent with its rhetoric. Licensing is typically justified on the grounds that market mechanisms will not mitigate the problems associated with asymmetric information. In

Local Knowledge: Caring Communities: The Role of Nonprofits in Rebuilding the Gulf Coast

Tue, 01 Sep 2009 17:34:08 GMT

Visit our multimedia publication of Local Knowledge: Caring Communities.

The idea of "social entrepreneurship"-innovation in the philanthropic sector to fill in the gaps left by both the market sector and the state sector-has become a hot topic in the last decade. People increasingly wonder how nonprofit enterprises and social entrepreneurs can effectively mimic the successes of the market economy in increasing human welfare, choice, and dignity without either the profit-loss system of markets or the democratic and constitutional checks of the public sector.

So wide is the field of social entrepreneurship and so broad the definition that it is helpful to have a lens through which to focus the study of the area. The recovery of the Gulf Coast following the destruction wrought by Hurricane Katrina in 2005 provides such a lens. Since 2005, researchers from the Mercatus Center at George Mason University have studied how different social, legal, political, and economic institutions affected communities before, during, and after the hurricane, with an eye to learning what works in disaster preparedness and recovery.

Across the Gulf Coast, the voices of people affected by Katrina have showed us how people acquire knowledge and how people perceive government, businesses, and community efforts. Social scientific research, based on over 450 hours of interviews with people from the Gulf Coast, is critical to better understanding how people, businesses, and communities prepare for and rebuild after disasters and the role that the for-profit, nonprofit, and public sectors play in every day social and economic interactions.

Tocqueville's observation about the American tendency to form voluntary associations holds true today. The nonprofit sector plays a vital role in a society of free and responsible individuals. The face-to-face forces of reputation and community membership not only coordinate highly effective small-scale projects that support those in need, but they provide a sense of community and identity to us all.

This issue of Local Knowledge seeks to pay attention to and increase our understanding of the necessity and vitality of such associations and the work of social entrepreneurs in society, both in normal times and in those that are most trying.

Doing the Right Things: The Private Sector Response to Hurricane Katrina as a Case Study in the Bourgeois Virtues

Steven Horwitz — Thu, 27 Aug 2009 15:15:33 GMT

Supposedly self-interested and profit-seeking firms engage in behavior that could only be understood in terms of putting their employees and communities ahead of their corporate selfinterest. Major American companies from Marriott to McDonald's to Wal-Mart undertook major and minor acts of bourgeois virtue and contributed in a significant way to the recovery from Hurricane Katrina. Managers and senior leaders used the language of ethics and virtue, rather than that of narrow self-interest or profit maximization, in describing what they expected from employees, and employees used similar language to describe their own behavior. "Doing the right thing" was central to their response. What constituted "doing the right thing," how the very nature of large capitalist enterprises made doing "right" possible, and how doing "right" improved conditions after Katrina is explored in this working paper.

Citation (Chicago Style):

Horwitz, Steve. "Doing the Right Things: The Private Sector Response to Hurricane Katrina as a Case Study in the Bourgeois Virtues." Working Paper, Mercatus Center at George Mason University, 2009.

Best Responders: Post-Katrina Innovation and Improvisations by Wal-Mart and the U.S. Coast Guard

Steven Horwitz — Wed, 12 Aug 2009 15:10:31 GMT

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The unprecedented impacts of Hurricane Katrina provide an interesting study in how organizations innovate and improvise in the face of the unexpected. Most of the attention paid to organizational performance during the disaster has focused, understandably, on the systematic failures of FEMA. But were there any successes? Yes, in fact. Two of the stand-out responders were Wal-Mart and the United States Coast Guard-one a private-sector firm, the other a part of the federal government. While these two organizations are very different, they both succeeded in the demanding environment of post-Katrina response because they had created the right internal incentives for middle managers to take initiative and the right structures of communication to allow local information to determine the nature of the response.

Citation (Chicago Style)

Horwitz, Steven. "Best Responders: Post-Katrina Innovation and Improvisations by Wal-Mart and the U.S. Coast Guard." Innovations 4, no. 2 (Spring 2009): 93-99.

The Crisis of Katrina: Lessons for Preparedness and Response

Carrie Conko — Wed, 15 Apr 2009 16:29:44 GMT

Featuring:

August 29, 2006 will mark the one year anniversary of Hurricane Katrina's landfall in the U.S. Gulf Coast region. What have we learned from Katrina, and what does it mean for other communities that face disaster - natural or man-made? What is the status of the rebuilding effort? Can communities torn apart by disasters rebuild? What role should government, communities, volunteers, and businesses play during and following a disaster?

In a joint Mercatus Center/National Press Club event, scholars from the Mercatus Center at George Mason University released preliminary findings of a five-year research project analyzing these issues with commentary provided by journalists from the National Journal and Pulitzer Prize winning New Orleans Times-Picayune. You can watch the event on C-SPAN's website.

Presentations and comments by:

Dr. Eelco Dykstra, National Press Club and visiting professor of International Emergency Management at The George Washington University
Dr. Peter Boettke, professor of economics at George Mason University and project director for "Crisis, Preparedness, and Response in the Wake of Katrina"
Dr. Russell Sobel, James Clark Coffman Distinguished Professor of Economics at West Virginia University and author of "Weathering Corruption," and "The Economics & Politics of FEMA - Why FEMA Failed after Hurricane Katrina"
Dr. Emily Chamlee-Wright, professor of economics at Beloit College and author of "After the Storm: Social Capital Regrouping in the Wake of Hurricane Katrina"
Jonathan Rauch, guest scholar at the Brookings Institution and a senior writer and columnist for National Journal and a correspondent for The Atlantic Monthly
James Varney, staff writer at the Pulitzer Prize winning New Orleans Times-Picayune

The Crisis in Public Safety Communications

Kathleen O'Hearn — Fri, 17 Oct 2008 13:42:31 GMT

Exactly five years to the day before the September 11, 2001 attacks, the FCC issued a report warning that a lack of interoperability among public safety emergency communications systems was preventing emergency personnel from protecting life and property. "Rescuing victims of the [1993] World Trade Center bombing, who were caught between floors, was hindered when police officers could not communicate with firefighters on the very next floor," the report stated. Sadly, it was precisely such interoperability problems that would prevent over 100 New York City firefighters from receiving an evacuation order on September 11^th before the towers collapsed. Until an improved public safety communications system is actually implemented, tragic outcomes will continue to haunt first responders to public emergencies.

The Crisis in Public Safety Communications brought together prominent scholars, policymakers, and industry officials to discuss solutions to this deadly serious problem. Major telecommunications scholars presented groundbreaking research on what causes the lack of effective communication between local public safety personnel, and how U.S. spectrum policies have failed to remedy this Balkanization problem. This research was then discussed by two panels of industry executives, public safety officials, and policymakers with deep knowledge of the problems confronting us.

Symposium Publications:

**These papers will be published in an upcoming symposium edition of the Federal Communications Law Journal. Please do not quote, cite, or distribute without the permission of the author.**

Solving the Interoperability Problem - Gerald R. Faulhaber
Fundamental Reform in Public Safety Communications Policy - Jon M. Peha
Communicating After Disasters - Philip J. Weiser
Sending Out an S.O.S. - Jerry Brito

PowerPoint Presentations:

Impact of Hurricane Katrina on Communications Networks - Nancy J. Victory
Solving the Interoperability Problem - Gerald R. Faulhaber
Fundamental Reform in Public Safety Communications Policy - Jon M. Peha
Communicating After Disasters - Philip J. Weiser
Achieving Interoperability - Charles Werner

Schedule of events:

8:00 - 8:30 am: Opening address: Nancy Victory, Chair of FCC Independent Panel Reviewing the Impact of Hurricane Katrina on Communications Networks, and formerly Administrator, National Telecommunications and Information Administration.