September 10, 2005
Responses on Disasters and Good Samaritans-BECKER
A few brief responses. It was suggested that we should not compensate for loss of property, but only for humanitarian assistance. In some situations that is reasonable, but in otheres it would be misleading since property assistance and humaritarian assistance are sometimes hard to distinguish. For example, owners of small business may have all their wealth invested in property, or an elderly couple may own their home and nothing else. Property losses to these and other groups would be catastrophic too.
Perhaps the government could catalogue the risks in different locations. It would be a mighty undertaking however, since, for example, New Orleans on its past record did not seem very risky. But something along these lines is required if compulsory insurance is to be required in selected areas.
The Good Samaritan problem does not arise only when the compensation paid more or less fully offsets the loss. In past disasters, the federal government often paid victims a substantial, although still incomplete, part of their losses. Such victims would generally have their decisions affected even though they are not fully compensated for losses.
The poor of all colors and ethnicities do move across regions less than others. But over the years actually a very significant number of both poor white and African-American did move out of the South.
The strong emotional bond within many families cuts both ways. Parents may be more moved to help children in distress than governments are to help citizens, but at same time children may be more likely to refrain from bad behavior because they care about the effects on their parents.
I certainly do not oppose helping those enormously harmed by Katrina and other disasters. However, that does not mean that the Good Samaritan problem is unimportant, or that policies cannot make it less serious. Even if the choices of many persons are not altered by prospects of help if disasters strike, as long as significant numbers do look ahead, it is important to implement policies that push their decisions into more efficient directions. By implementing sensible public policies regarding disaster assistance, more resources would be available to help people truly in need.
Posted by becker at 09:30 AM | Comments (5) | TrackBack (0)
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As to the Good Samaritan problem:
Poor people are both more likely to remain where they are irrespective of government insurance and less likely to build or invest in risky areas because of such "free" insurance.
The fairly wealthy John Stossel was on O'Reilly the other day admitting that he built a beach house where it could be destroyed based on a calculation regarding "free" government insurance.
The question is how can we get an insurance system, consistent with the rule of law, that leaves our Stossels out to dry while protecting, say, the New Orleans native small business owner.
Posted by Anonymous at September 10, 2005 12:22 PM | direct link
When I started thinking about the "good samaritan paradox" and the New Orleans situation, data got me thinking about California. Without seeking it, I also hear people speculating that an earthquake in CA might be next.
A lot of people have moved to CA. Consider the pouplation growth in San Francisco relative to New Orleans. People in CA tend to use leverage. Houses are expensive. Is all of this insured? How do insurance companies assess probabilities of "rare" events?
The theory of the fat tails is interesting. Maybe the normal distribution does not always apply.
http://www.trendfollowing.com/whitepaper/mauboussin.pdf
Posted by nate at September 10, 2005 02:24 PM | direct link
Cost benefit analysis is key for determining a cause and effect projection. However, it is only a tool for informing what becomes an ethical decision right? Given that math is the language of economics; how might one plot the ethical impact of a given decision? Or would it even be relevant (ever) if benefit was always measured in relation to the greater good�
Specifically, how would one, and has anyone, factored the relationship between the amount of government aid provided New Orleans, and its' subsequent effect on citizens' trust/faith-in the government throughout the entire country? And finally, what effect that might on our economy?
Perhaps I am a dreamer, but if all monetary transactions were done after calculating the balanced utility for the self and man we could help mankind as we helped ourselves.
Posted by Sam J. at September 11, 2005 11:28 AM | direct link
Insurance companies openly discuss adverse selection and moral hazard as the primary way of evaluating policies.
I was interested how Becker would work through these issues privately then publicly.
How would he approach a situation where the private insurance company as the underwriter feels the risk is too high to insure?
Then, how would he evaluate the government insurance program?
Does a government insurance program stabilize and add liquidity to the market as it did with mortgages in the thirties?
For Posner, I was wondering if he had insight to particular cases concerning insurance clauses. Obviously, an insurance contract is very involved.
Polinisky at Stanford maintained that law students are under exposed to insurance law. This led to a gap in the law and economics analysis.
The question remains how to narrow this gap, and what cases would we look to in evaluating Katrina?
Posted by GARYGECH at September 14, 2005 09:31 PM | direct link
If people are 'touched' its not by often by some hint of divine inspiration. Rather, disasters test the strength of social solidarity. During WWII it was strong in England, and weak in France. In France tragedy impacts the individual, and if something happens to a child that impacts his parents.(good for rotten kid, usually, bad for too many others) What happens to citizens does impact a figurehead, i.e. George W. Bush is very sorry. However, this is stylized sentimentality. Parents are over-aggressive in their attempt to help their children because they want to artificially prolong life. To the detriment of the greater. Frankly, if New Orleans were only a house, I wouldn't care, but a lot of people love New Orleans and they care.
If the government doesn't step in to help rebuild New Orleans only because an accident occurred. I think that's wrong. Slipping on an icy patch does not necessarily make a person a bad walker. I really think that its such a prized city that its devastating to think that such a city can be relocated at will. If they try, it would be pathetic. Besides, the 'cult of deathers,' the laughing liberals who are all about universal morality. Want New Orleans to die.
Posted by michelle at September 15, 2005 02:57 PM | direct link
