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Preventive investment and relief spending for natural disasters: Why do rescue operations cause big spending for prevention?
Author(s) -
Seshimo Hiroyuki,
Yamazaki Fukuju
Publication year - 2018
Publication title -
regional science policy and practice
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.342
H-Index - 8
ISSN - 1757-7802
DOI - 10.1111/rsp3.12129
Subject(s) - compensation (psychology) , investment (military) , natural disaster , government (linguistics) , business , public economics , finance , actuarial science , economics , political science , geography , psychology , politics , meteorology , psychoanalysis , law , linguistics , philosophy
This paper considers the locational decisions of residents in a small, open linear city at risk for natural disasters and analyses the relationship between disaster preventive investment as public goods and compensation by the government. Remarkably, the ex post optimal compensation policy, a type of fully covered compensation, makes the residential area more vulnerable to natural disasters. As a result, the ex post compensation policy requires excess preventive investment. External financing does not improve this problem and may actually exacerbate it. Based on these theoretical findings, we propose a socially optimal disaster policy to resolve these issues.