Saturday, August 31, 2013

Is Natural Disaster Insurance a Public Good?

Interesting from Urban and Environmental Economics:

"Read this reasonable piece about FEMA and natural disasters but ponder a simple question; why do areas affected by natural disasters receive any transfers at all from other regions? National defense is a public good but how is natural disaster insurance a public good? You can convince me that the state that is impacted can provide disaster relief to the affected community but why are federal funds used for this cause? When I buy dinner, I use my own funds to pay for the dinner. Why don't I ask other tax payers to buy me dinner? Yes, it is true that dinner is a nightly anticipated event but why don't states at greater risk for disasters keep their own "rainy day" fund? If they don't keep such a fund, why should other states "bail them out"? If no private insurance company will provide market insurance for those taking risks, why should the government implicitly provide that insurance through ex-post payoffs? What risks do we subsidize and what risk taking do we tax?"

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