Abstract
Federal, state, and local government, through the establishment of numerous benefit (some would say entitlement) programs, has stepped forward to accept some risks on behalf of its citizens. Taxes are the primary source of revenues to compensate those in need. In some cases, notably Social Security, revenues are at least partially provided by those who directly benefit from the program—the employees—supplemented by contributions from employers.
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Notes
For example, following Hurricane Agnes in 1972 the federal government, through the Small Business Administration, provided grants of up to $5,000 to cover the first layer of losses and 1 percent 30-year loans to cover the remaining portion of the damage. See Kunreuther, Howard, Recovery from Natural Disasters: Insurance or Federal Aid, American Enterprise Institute, Washington, D. C, 1973.
These programs may be costly to taxpayers if large numbers of loans are granted at below-market interest rates. Although such programs are more stringent than they were 20 years ago, the Small Business Administration still provides subsidized low-interest loans for individuals and businesses, with terms of up to 30 years. The interest rate may not exceed 4 or 8 percent, depending on whether the recipient has credit available elsewhere. See U. S. Congress, Federal Disaster Assistance Report of the Senate Task Force on Funding Disaster Relief, Washington, D. C, USGPO, 1995, p. 156.
Kunreuther, Howard, “Mitigating Disaster Losses Through Insurance,” Journal of Risk and Uncertainty. (In press).
Priest, George, “The Government, the Market and the Problem of Catastrophic Loss,” The Journal of Risk and Uncertainty.
New Zealand illustrates a case where a country treated disasters as the responsibility of all property owners in the country without regard to their hazard exposure. Until recently, funds to cover losses from disasters were obtained by a compulsory levy of 5 cents per $ 100 of property insured on all insurance contracts with fire content in them and were administered by the government’s Earthquake and War Damage Commission. The philosophy behind the Fund was that natural events were unforeseen and that where they were widespread and extraordinary, citizens ought to be helped by recourse to a central fund. The country has changed its philosophy and now places much greater responsibility for loss-sharing onto the private reinsurance industry and affected communities and individuals. See Hay, Iain, “Shaken Not Stirred: Repercussions of New Zealand’s Earthquake Commission Act 1993,” New Zealand Geographer, 50(2), p. 46–50.
See Bernstein, Merton C, and Joan Brodshaug Bernstein, Social Security: The System That Works, Basic Books, Inc., New York, 1988, p. 13., and in particular, reference number 3 which cites a United States Senate report.
Boyd, James and Howard Kunreuther, “Retroactive Liability and Future Risk: The Optimal Regulation of Underground Storage Tanks,” Wharton Risk Management and Decision Processes Center Working Paper, Wharton School, University of Pennsylvania, Philadelphia, PA, September 1995.
42 U. S. C. sections 9601-9675
Probst, Katherine and Paul Portney, Assigning Liability for Superfund Cleanups: An Analysis of Options, Resources for the Future, Washington, D.C., June 1992.
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© 1997 Springer Science+Business Media New York
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Freeman, P.K., Kunreuther, H. (1997). Managing Risk Through Government Benefit Programs. In: Managing Environmental Risk Through Insurance. Studies in Risk and Uncertainty, vol 9. Springer, Dordrecht. https://doi.org/10.1007/978-94-011-5360-7_2
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DOI: https://doi.org/10.1007/978-94-011-5360-7_2
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