January 11, 2007

The Impact of FEMA on U.S. Corruption: Implications for Policy

  • Peter Leeson

    Senior Fellow, F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics
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This Policy Comment examines the effect that federal government disaster relief payments have on local corruption.  Using econometric analysis Leeson and Sobel explain how federal disaster aid acts as a resource windfall and why states that have more natural disasters see higher levels of public corruption.  They explain how public corruption has negative effects on communities' long-term prosperity and describe how policy makers can craft disaster response policies to minimize these negative unintended consequences. 

With the Hurricane Katrina debacle raising questions about public corruption’s impact on disaster relief, corruption has once again become an important issue in American politics. This comment, however, analyzes not corruption’s impact on disaster relief, but rather the impact that disaster relief has on corruption.

Disaster relief floods money and resources into the affected area, which provides public officials the incentive and opportunity to gain wealth through corrupt practices. Our analysis shows that states that receive more disaster relief also have more instances of public corruption.

Corruption not only hinders the effective management of disaster relief, but it also has long-term consequences for economic prosperity. More corruption is associated with lower growth and investment, and states that receive disaster relief often suffer from these effects.

When determining the best course of action, policy makers must remember that increased corruption is an unintended consequence of disaster relief. Increased oversight is unlikely to solve the problem of corruption because of the circumstances surrounding natural disaster. The time sensitive nature of the disaster relief means that protocol will take a backseat when disasters actually strike.

Policies that assume the federal government plays the primary role in disaster response are the most susceptible to corruption. Total elimination of public corruption generated by disaster relief will not be possible so long as FEMA relief exists. Any plan to reform disaster relief that intends to minimize corruption should recognize the role of local actors, presumably charities and business, and create space for them to react in time of crisis. Policy makers should recognize the consequences of disaster relief when dealing with urgent crises in order to make sure that they do not hinder the long-term prosperity of a community.

Citation (Chicago Style):

Sobel, Russell and Peter Leeson. "The Impact of FEMA on U.S. Corruption: Implications for Policy". Mercatus Policy Series, Policy Comment No. 8. Arlington, VA: Mercatus Center at George Mason University, January 2007.