Natural disaster and destination management: the case of the Caribbean and hurricane Irma

This current issue in the Caribbean raises the topic of destination management and more particularly the importance of considering natural phenomenon when planning and developing a tourism product. The impacts of Irma on some Caribbean islands such as Saint-Barthelemy, Saint-Martin, Barbuda and Anguilla show that hurricanes are major risks for the tourism industry of the islands. This risk could be said to be absolute in the Caribbean but the negative impacts can be mitigated by appropriate strategies. To some extent, natural disasters provide tabularaza that give destinations opportunities to reinvent themselves sustainability.     

The new political importance of the old hurricane risk: a contextual approach to understanding contemporary struggles with hurricane risk and insurance

In the United States, policy-makers struggle to resolve conflict between public demands for affordable insurance costs covering hurricanes and market demands for risk-based insurance pricing. Given the socially constructed nature of risk, a risk-based pricing approach prioritizes insurer values and business practices over all societal value goals expressly limiting democratic inclusion in decision-making about risk. As a step towards the more democratically inclusive approach of risk governance, this article uses the state of Florida as a case study to provide a narrative of the social and political context for the evolution of the idea of U.S. hurricane risk. I argue that today’s hurricane risk is a product of long-standing shared efforts to build prosperity. However, it is no longer a simple risk for society to overcome on its way to economic well-being. Contemporary hurricane risk is systemic and serves as a nexus for political battles over American values.     

An examination of market efficiency around hurricanes

Hurricane Andrew produced more than $21.5 billion in property damage in Florida and Louisiana. Hurricane Hugo caused about $7 billion in damage in North and South Carolina. Although both hurricanes were large, the magnitudes of their destruction and the geographic concentrations of their paths were markedly different. This study finds that Hugo and Andrew produced substantially different market reactions on property and casualty (P&C) firms. The industry was generally unaffected by Hugo, regardless of whether or not firms had exposure in the Carolinas. Andrew, on the other hand, generated a significant negative impact on firms with exposure in Florida or Louisiana. Other firms were not effected by Andrew. These observations indicate that the market demonstrated an ability to discriminate by the magnitude of hurricane and by P&C firms based on their degree of loss exposure.     

Can Natural Experiments Measure Behavioral Responses to Environmental Risks?

Efforts to measure people’s responses to spatially delineated risks confront the potential for correlation between these risks and other, unobserved characteristics of these locations. The possibility of correlation arises in part because individuals observe other locational attributes that can be expected to influence the hedonic equilibrium. One response to this problem is to use events from nature to exploit both temporal and spatial variation in the behavioral responses of interest. This paper evaluates the use of hurricanes as a source of new risk information to households in coastal counties potentially subject to the effects of these storms. We study the extent to which housing prices before and after hurricane Andrew, a hurricane with unprecedented property loss, reveal how Floridians responded to the risk information provided by the storm. Two counties are selected – one without and another with damage from the hurricane. To evaluate the plausibility of using quasi-random experiments for locations not directly affected by natural events, we compare Lee County’s results to those of Dade County, where the majority of the damage occurred. Our findings suggest, after controlling for ex post storm damage and changes in insurance markets, there is a reasonably high level of consistency in a repeat sales model’s ability to estimate the effects of the risk information conveyed by the storm for both counties. Department of Economics, Williams College, Affiliated Economist, CEnREP, North Carolina State University and University Distinguished Professor, North Carolina State University, and Resources for the Future University Fellow, respectively. Senior authorship is not assigned. Thanks are due to Shelby Gerking and two anonymous reviewers for careful and constructive comments that substantially improved the paper. Michael Darden and Jaren Pope provided excellent research assistance and Alex Boutaud and Susan Hinton helped to make sense out of numerous drafts of this work. Smith’s contribution was partially supported by the United States Department of Homeland Security through the Center for Risk and Economic Analysis of Terrorism Events (CREATE), grant number EMW-2004-GR-0112. However, any opinion, findings, and conclusions or recommendations in this document are those of the author(s) and do not necessarily reflect views of the U.S. Department of Homeland Security.     

Thoughts on whether government should steer a tropical cyclone if it could

Previous work suggests if it were possible to lower sea-surface temperature using wind-wave pumps, it would sometime make sense to try to reduce the wind speed of a tropical cyclone (TC) that is likely to make landfall. While currently there is no plausible strategy to steer a TC, suppose that TC landfall location could be altered and subsequent damages perhaps reduced. Here, we ask whether and when such a modification might be desirable. As a thought experiment, we consider a hypothetical TC that will make landfall on the east coast of Florida. Using results from previous detailed damage modeling, we examine three simplified scenarios of TC modification resulting in altered landfall location. Even in these simplified scenarios, and assuming a zero cost for modification, we find that unless it becomes possible to steer a hurricane to the open ocean with something approaching certainty, it is likely that the complexities of the decision will always make it undesirable to undertake a modification intended to steer TCs.     

Assessment of storm surge damage to coastal settlements in Southeast Florida

Coastal cities are growing at a very rapid pace, in terms of both population and physical assets, and great uncertainty surrounds the future evolution of hurricane intensity and sea-level rise. The combination of these trends will contribute to large financial losses due to property damage in the absence of specific protections. Southeast Florida represents a clear hot spot of coastal flood exposure: more than 5?million inhabitants live in the counties of Miami Dade, Broward, and Palm Beach, and the population is still growing. It is also a low-lying area where tropical hurricanes hit frequently. This article illustrates a methodology to assess coastal flood damage in urban settlements and it aims to determine more general lessons useful for all coastal cities. We consider the impact of different storm surges predicted by the SLOSH model and investigate flood risk considering different types of hurricanes. For each event, we apply a specific damage function and determine whether the considered storm surges potentially lead to an asset loss, considering both properties and their contents. The results show that, in the absence of protections, losses will be very high for large storm surges, reaching up to tens of billions of US dollars. In the second part of the analysis, we demonstrate how economic impact changes when protections are built up, considering different heights of protections. These results could be used as inputs into a robust decision-making process to determine the future of coastal protection in southern Florida.     

The Market Valuation and Trading Volume Effects of the Creation of the Florida Hurricane Catastrophe Fund on Property-liability Insurers

The Florida Hurricane Catastrophe Fund was officially created in November, 1993. This study analyzes investor reactions during the creation of the Florida Hurricane Catastrophe Fund. We find significant share price reactions for four of six legislative events consistent with the predictions of the theory outlined. We use both a generalized least squares portfolio approach and Corrado's (1989) rank statistic, a nonparametric event study methodology, to arrive at our findings. Empirical analysis of trading volume corroborates the findings involving share price reactions. We also find that the market is able to discriminate between property-liability insurers on the basis of hurricane exposure and firm size.     

Environmental Risk and Averting Behavior: Predictive Validity of Jointly Estimated Revealed and Stated Behavior Data

We conduct predictive validity tests using revealed and stated behavior data from a panel survey of North Carolina coastal households. The application is to hurricane evacuation behavior. Data was initially collected after Hurricane Bonnie led to hurricane evacuations in North Carolina in 1998. Respondents were asked for their behavioral intentions if a hurricane threatened the North Carolina coast during the 1999 hurricane season. Following Hurricanes Dennis and Floyd in 1999, a follow-up survey was conducted to see if respondents behaved as they intended. A jointly estimated revealed and stated behavior model indicates that the hypothetical and real evacuation behavior is based on the same choice process. Using predictions from this model with a hypothetical bias correction, we find that it predicts actual evacuation behavior with a small forecast error. These results suggest that stated behavior data has some degree of predictive validity.