Working Paper

Political Economy

Timothy J. Goodspeed, Andrew F. Haughwout

2009/25: On the optimal design of disaster insurance in a federation

Recent experience with disasters and terrorist attacks in the US indicates that state and local governments rely on the federal sector for support after disasters occur. But these same governments are responsible for investing in infrastructure designed to reduce vulnerability to natural and man-made hazards. This division of responsibilities – regional governments providing protection from disasters and federal government providing insurance against their occurrence – leads to the tensions that are at the heart of our analysis.