Preparing for the Worst

The 2017 hurricane season has been a stark illustration of the old parable that trouble comes in threes. First Harvey did historic damage to Houston and was followed by Irma in Florida – the most powerful Atlantic hurricane since 2005 – which was followed by Maria in Puerto Rico where 50% of the population is still without power weeks after the disaster. Sandwiched in between these hurricanes Mexico was struck by two large earthquakes – the second of which was on the 32nd anniversary of a quake that killed 10,000.

In responding to each of these disasters, those most affected have received a lot of support from other countries. In particular, even though Mexico has a team of expert disaster rescuers called the “Topos” (Spanish for groundhogs), a number of professionals came from Japan, Chile and other countries used to dealing with earthquakes to help with the rescue mission. Similarly, after Puerto Rico was hit by hurricane Maria, it was clear that rescue workers would have to come from the US mainland, Puerto Rico did not have the man-power to deal with a disaster on its own, and in fact none of the states that were hit on the mainland by other hurricanes did either (e.g. Texas and Florida), relying on the federal government for help with rescue and recovery efforts.

In all these cases the local governments had not invested enough in training rescue workers, equipment, and infrastructure to deal individually with the worst possible disaster. After large and unlikely disasters, we can often see the local resources to deal with the disaster wanting. Aid to deal with these disasters is sent in many forms and public officials are often chastised for not being prepared.

Why is that the case?

Investing in the ability to deal with a disaster is like taking out an insurance policy. We only invest in it more as the risk of the disaster increases. And more to the point, we are likely never going to be prepared for the worst disasters because they are exceedingly rare. As a society, we will find that it is better to invest in other activities that will be useful during events that are more likely.

Category 8 earthquakes can be disastrous, but they are so unlikely in Mexico, that it would be expensive to train the number of “Topos” they would need to deal with such an earthquake on their own. Instead, when disaster strikes, the international community often mobilizes. Countries with shared expertise in the particular type of disaster relief (like Japan) send people and equipment.

Therefore, Mexico benefits indirectly from the fact that Japan is exposed to high category earthquakes, since Mexico’s effective stock of rescue workers during a really bad earthquake expands by the number that other countries are willing to lend Mexico. The reverse happens to Japan, who can also call on the international community for help to deal with highly unlikely disasters that stretch their resources.

Mexico has a shared insurance policy (in disaster relief capabilities) with Japan, where each country can benefit from the capabilities of a distant nation.

If Mexico were the only country in the world that had to deal with earthquakes, Mexico would be alone in the world in having the type of personnel and equipment necessary for dealing with disasters. They would have to invest more individually than they could if there were other nations who could collectively bear that risky burden. As the number of countries exposed to earthquake risk rises, the better off Mexico is, since the countries can collectively invest in their capabilities and Mexico can save.

However, as you may have noticed, I have already used the word collective, and as we know from economics, people have a lot problems making choices that are collectively beneficial. So what is likely to happen?

First, while it is true that Japan will send its rescue workers to Japan, Japan is not going to gain anything from the fact that Mexico could benefit from Japan’s existing capability. Therefore, Japan will underinvest in their preparation for disasters relative to what would be best for both countries. Japan’s investment has a positive externality on Mexico that it does not place any value on (in other words, Mexico free-rides on Japan’s investments).

In addition, Japan knows that the more they invest in their rescue workers, the less Mexico will invest in their own Topos, since they know that they will have help from Japan in the future. Japan wants Mexico to have a large enough force of Topos such that when Japan is hit with an earthquake, Mexico has some Topos that it can send to Japan for help. Therefore, Japan will invest less in their rescue workers to make sure Mexico invests more. This a strategic free-rider problem that compounds the classic one above.

Finally, there is one challenge we have not thought about. What if there is an earthquake in both Mexico and Japan at close to the same time? There will not be sufficient workers to deal with the risk. The more likely we are both going to be hit at the same time, the less each country gains from collective insurance.

Hurricanes in the Caribbean, for example, face this challenge, since many hurricane exposed countries are hit by the same storms. Haiti, for example, does not benefit much at all from the Dominican Republic’s investments in hurricane relief capabilities since both countries probably get hit by the same hurricane. In these cases, the Dominican Republic will have to spend its resources on its own citizens. The investments by more distant countries are more valuable to Haiti, since they are less likely to be affected by the same risk. Puerto Rico, for example is very far from the United States mainland, and hurricane Maria did not severely affect the US mainland. That meant that the US government had resources available to send to Puerto Rico in its time of need. If hurricane Maria had then hit the coast of Florida with similar force, fewer resources would have been available to deal with disaster in Puerto Rico.

Often the conversation after a disaster is about how the government did not prepare to deal with the worst case scenario on its own – but politicians and leaders should not be shamed for appealing to the international community for help. In fact, it is perfectly rational and spending resources to prepare for every unlikely eventuality would be wasteful. Instead we should be evaluating leaders on how they approach risk and the likelihood of different events rather than making decisions based on the latest or worst disaster. In short, focusing on improved mechanisms for collective investment in disaster response capabilities would make all of us better off.

 

Image courtesy of Flickr. Originally published by S&S on January 4, 2018.

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