Institutions, incentives, and disaster relief

Purpose - The purpose of this paper is to highlight the importance of property rights institutions to disaster relief efforts, with a focus on the US Federal Emergency Management Agency in the aftermath of Hurricane Katrina in New Orleans, Louisiana. Design/methodology/approach - The paper utilizes public choice, Austrian, and new institutional analyses of bureaucracy. It discusses private and public sector responses to the situation in New Orleans following Katrina and to disasters in general, and compares the institutional frameworks that develop over time in both sectors. Findings - The paper finds that a large and bureaucratized response to disasters hinders economic calculation, incentive structure, and property rights institutions, all of which are crucial for rapid disaster response, the relief of human suffering, the minimization of knowledge problems, and the promotion of an efficient allocation of resources. Practical implications - This research suggests that the role of the price system in allocating resources is especially important following disasters and that in order to ensure relief efforts are as efficient as possible, public‐sector actors should do nothing to impede them. It also suggests that the incentives to prepare an efficient emergency preparedness program are greater when those most affected by potential disasters are held responsible for their implementation. Originality/value - The paper provides a critical evaluation of the role of highly centralized approaches to disaster relief.