34. International Public Finance Conference
The Political Economy of Natural Disaster Prevention And MitigationTülin Altun
Societies do not take adequate action to transfer risk or to prevent/mitigate potential damage caused by natural disasters. Essentially, the public sector must intervene in market failures stemming from such problems as imperfect and/or asymmetric information, myopia, and collective inertia. Although more efficient allocation of social resources reduce the fiscal burden of natural disasters on public finance and increase social welfare, the public sector also fails in this regard. Specifically, certain political motivations prevent effective natural disaster risk management, one example being that politicians, due to the problem of time inconsistency in public finances, attach greater importance to policies that will bolster short-term electoral support. Politicians consequently fail to enact sufficient regulations and make the necessary investments with regard to natural disaster prevention if the safeguard’s benefits manifest in the long term while placing burdens on constituents in the short. As such, they prefer distributing disaster aid as doing so garners election support. Solving the problems stemming from political motivations is only possible by establishing institutional mechanisms that increase democratic accountability and raise public awareness of the risks of natural disasters.