The High Impact of Hurricanes on Prices in Low-Income Communities

Problem definition : Responding to large hurricanes requires the deployment of food, shelter, and medical assistance to relieve the immediate needs of the victims. These services are supported by, and eventually fully transitioned to, local resources, such as grocery stores. However, disparities in local infrastructure and services may result in low-income communities bearing a disproportionate burden from these disasters. We investigate this possibility by testing for differences in the percentage change in paid prices, stockouts, and substitutions for grocery products between low-income and high-income communities following three large Atlantic hurricanes. Methodology/results : We use major disaster declarations by the U.S. federal government, and marry this information to U.S. Census Bureau data on household demographics and third-party data on grocery store sales. Using a triple-difference regression specification, we find that low-income communities in the disaster zones endure higher average percentage price increases within grocery categories compared with high-income communities. We provide evidence for several mechanisms that can contribute to this outcome—higher percent price increases at the product level, more frequent stockouts of low-priced products, and a larger increase in stockout-based substitution from low-priced products to high-priced products. Managerial implications : Product pricing, stockouts, and stockout-based substitutions are important topics in operations management practice and research. We provide empirical evidence across these outcomes of sustained heterogeneous effects by community income level in the aftermath of a hurricane. These findings can inform private and public sector responses to hurricanes, including pricing, prepositioning target goods, strategic overstocking, grocery store access, and structuring cash-and-voucher (C&V) programs that anticipate the disaster-induced substitution patterns of different community types.