Why Natural Disasters are a Disaster in Common Property Resources

Developing countries tend to suffer the most from natural disasters, but the mechanisms underlying this outcome are poorly understood. I postulate that the lack of strong and well defined property rights for renewable resources is a key factor increasing the impacts of disasters. Using a theoretical model for renewable resource extraction with irreversible investment, I show that common property regimes incentivize users to invest in ways that exacerbate both immediate losses from disasters and increase the cost of recovery after they hit. I test these predictions by examining investment patterns across institutional regimes in Chilean small scale fisheries before and after a tsunami in 2010. The results indicate causal links between more common regimes and excessive investment increasing the cost of the tsunami. This paper contributes to the ongoing work on the economic impact of natural disasters and provides an argument for how institutional regimes can be used as mitigation strategies. JEL Classification: D2; H2; K3; L2; Q2; Q5 I would like to thank Christopher Costello, Javier Birchenall, Olivier Deschenes, Kyle Meng, P.J. Hill, Gary Libecap, Wally Thurman, and Randy Rucker for their helpful comments on this idea. I also thank Iván Aviles from Nichimar Ltda. and Hugo Arancibia from the Federation of Artisanal Fishers of the Bio-bio Eegion (FEREPA) for their help and insights on Chilean small scale fisheries. In addition, the data collection process would not have been possible without the help of Allan Gómez and the Lab of of Aquatic Resources Economics and Management from the School of Marine Science at the Pontificia Universidad Católica de Valparáıso, Chile. Partial funding for this project was provided by the Property and Environment Research Centre (PERC) through the 2016 Graduate Student Fellowship.