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9 Cato J. 531 (1989-1990)
Disasters and Market Response

handle is hein.journals/catoj9 and id is 537 raw text is: DISASTERS AND MARKET RESPONSE George Horwich The post-World War II era has seen an enormous output of scientific research on the mitigation and behavioral response to disasters, both natural and otherwise. Over this same period, world gross economic product has surged, sparked by the performance of market-oriented economies in the West and Far East. An attempt to blend some of the insights of social scientists on disasters with the record of market- driven economic activity is, I think, a potentially useful exercise whose findings can simultaneously inform, constrain, and enhance the role of government in disaster management. In this paper, I will begin with a working definition of a disaster followed by an analysis of the American response, particularly that of the U.S. government, to the oil-supply disruptions of the 1970s and 1980s. The oil shocks, which have been thoroughly studied in the economics literature, readily qualify as a disaster under my definition. They also serve as a convenient reference for the market adjustments that follow an economic shock and to which a variety of government responses is possible. Finally, since the energy shocks have been the major disturbances to the post-World War II econo- mies, it seems fitting that an economic analysis of disaster manage- ment begins with a re-examination of experience during the energy crises. My assessment of the American government's management of the oil price shocks is not very positive in terms of either efficiency or Cato journal, Vol. 9, No. 3 (Winter 1990). Copyright @ Cato Institute. All rights reserved. The author is Professor of Economics and Burton D. Morgan Professor for the Study of Private Enterprise in the Krannert School of Management, Purdue University. The research for this paper was conducted during the author's tenure as a collaborating scientist at the Oak Ridge National Laboratory. An earlier version of the study was presented at the Milano Politecnico University in Milan, Italy, November 10, 1989. The author is indebted to the late Martin Katzman and to David Weimer for detailed and insightful comments on an earlier draft. He has also had the benefit of discussions on this subject with Conrad Chester, T. Randall Curlee, Lawrence Hill, Donald Jones, and Milton Russell. 531

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