Econ of Disasters – Unit Introduction



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Lesson 1: Are Disasters Good for the Economy?


scarcity & allocation

production possibility

frontier


productivity

economic growth

technology

Black Plague, 1347-50

Spanish Flu, 1918-19

Great Chicago Fire, 1871



Lesson 2: When Disaster Strikes, What Can Markets Do?


price


supply shock

consumption shock

price controls

price gouging

incentives

Great Chicago Fire, 1871

San Francisco Earthquake

& Fire, 1906

Asian Tsunami, 2004

Hurricane Katrina, 2005



Lesson 3: When Disaster Strikes, What Can Government Do?


incentives

rational choice

public choice theory

moral hazard

unintended consequences



San Francisco Earthquake

& Fire, 1906

Hurricane Katrina, 2005







Lesson 4: When Disaster Strikes, What Can We Do?


incentives

comparative advantage

competition

money

Federal Reserve system



San Francisco Earthquake

& Fire, 1906

Asian Tsunami, 2004

Hurricane Katrina, 2005

This set of lessons is compatible with the sequence of content and skill development in a semester-based high school economics course, but it is not necessary to teach the lessons sequentially or as a complete unit. Each lesson is designed to stand alone and can be useful in a variety of curricular contexts.


A note of definition and a caveat about what the unit is not are in order here. We have defined natural disaster to include those sudden, non-man-made events that result in widespread loss of life or damage to property. Hurricanes, earthquakes, volcanic eruptions, tsunamis, uncontrolled fire, and pandemics are natural events in our categorization – although we readily acknowledge that it is often possible and even appropriate to argue that humans play a role in the magnitude of the disaster’s impact. Our definition allows us to exclude – and perhaps leave for another project – man-made disasters in the form of war, genocide, or even the long-term subjugation of peoples under repressive governments. The caveat is that these lessons do not intend to address the issue of disaster prevention. Our focus is on the effect of and response to disasters as they are illuminated by the tools of economic reasoning.
Disasters can be studied as natural experiments that generate data on how economies react to extreme stress. While economic analysis of the data may provide lessons on how to cope with future instances of stress, it also helps to refine our understanding of how economies operate in normal circumstances. Some of the earliest studies of economies in disaster were undertaken in the 1950s and 1960s by the RAND Corporation, a think-tank for the U.S. military interested in the newly emergent possibility of nuclear disaster. Jack Hirshleifer worked for RAND as a young economist and maintained his interest in disaster economics throughout his subsequent academic career at UCLA. In 1987 he published a classic work, Economic Behavior in Adversity, surveying and compiling the foundational knowledge of the economics of disasters. The introduction to Economic Behavior in Adversity offers a succinct summary of established scholarship on disaster-related behavior. It is excerpted, at length, below.




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