11.02.2012

Should people living in high-risk locations get relief when they are hit by natural disasters?


National survey evidence on disasters and relief: Risk beliefs, self-interest, and compassion
W. Kip Viscusi, Richard J. Zeckhauser
Abstract: A nationally representative sample of respondents estimated their fatality risks from four types of natural disasters, and indicated whether they favored governmental disaster relief. For all hazards, including auto accident risks, most respondents assessed their risks as being below average, with one-third assessing them as average. Individuals from high- risk states, or with experience with disasters, estimate risks higher, though by less than reasonable calculations require. Four-fifths of our respondents favor government relief for disaster victims, but only one-third do for victims in high-risk areas. Individuals who perceive themselves at higher risk are more supportive of government assistance.
Un-gated version here. The conclusion is succinct:
This paper explored two broad questions: 1. What factors drive individuals’ beliefs about their risks from various disasters, and how accurate are those beliefs? 2. What policies do individuals favor for disaster relief, and how do those policies relate to their assessed risks?
The answer to the first question is that risk beliefs have many rational components, but fall short of what one would expect with fully rational Bayesian assessments of risk. Personal experience and location-related risk influence risk assessments in the right direction, but insufficiently. These factors should have a very powerful influence, as our Lorenz Curve for fatality risks by state shows that natural disaster risks are highly concentrated, unlike auto fatality risks. 
For each of our four natural disasters, more than half of our respondents thought that their fatality risk from natural disasters was below average, and another roughly thirty-five percent thought their risk was average. Even people who had experienced disasters did not differ markedly from those who had not. 
A common explanation for apparent underestimation of risks, such as those from auto accidents, is that individuals suffer from an illusion of control. That explanation does not apply to natural disasters. A plausible hypothesis, worthy of further study, is that individuals actually understand the skewness in the distribution of risk. Though only half of the population can be below median risk, the vast majority are below average in risk. That is surely true for auto accidents as well, the favorite domain for “control” hypotheses. 
More than four-fifths of our respondents favored government assistance for victims of natural disasters, but this fraction fell to only one-third when the natural disasters happened to people living in high-risk areas. This decline suggests that respondents intuitively un- derstand the concept of moral hazard. We label this phenomenon “efficient compassion.” That is, there is a strong element of compassion in their responses, but it is tempered when disaster victims have knowingly exposed themselves to high risk. Individuals who perceive themselves to be at greater personal risk are more supportive of government assistance, as are groups that tend to be liberal politically. Black respondents, who may have been particu- larly struck by the governmental failure to rescue the black population of New Orleans from Hurricane Katrina, are much more supportive of continued aid to that city. In short, policy preferences for disaster relief reflect both compassion for the unfortunate, and a dollop of self-interest.
More interesting excerpts:
Political orientation is a main driver of the support for relief, not just for the efficient compassion questions, but for all the relief options. In every instance, Republicans have a consistently lower probability of supporting the relief policies than do Democrats and independents. After controlling for political affiliation, blacks have higher probabilities for support; females also have higher probabilities, though not where moral hazard is a prime factor. Presumably, these groups are more liberal than their mere political affiliation indicates... 
The equations also included a measure of individual risk-taking behavior—the general health risk exposure of the respondent as reflected in whether they currently smoke cigarettes. Smokers face a considerable smoking-related mortality risk; their probability of premature death due to smoking is 1/6 to 1/3. The smoker variable consequently captures willingness to expose oneself to extremely large health risks. Beyond this, the smoker variable may also reflect a tolerance for others who take risks and are guilty of moral hazard, since smokers are frequent targets of criticism for their own risk-taking behavior. For the two relief questions involving individual choices to engage in risky behavior, smokers are more forgiving of decisions involving moral hazard and are more willing to support relief. Both effects are significant at the 10 percent level. 

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