Disaster Management and Recovery: Estimating the Disaster Impacts on Construction Costs and Evaluating the Policy Effects on Disaster Recovery

A rapidly increasing number of natural hazards pose an inevitable threat to communities. More than a hundred natural hazards strike the United States every year, causing numerous fatalities and billions of dollars of property and infrastructure damage. The total cost of U.S. weather and climate disasters since 1980 has already exceeded 2 trillion dollars. As the number of U.S. county-level disasters has approximately tripled in recent decades due to rapid climate change, a greater share of the population is now more likely to expose to natural disasters.

Adequate and timely reconstruction and recovery in post-disaster situations are essential for the safety, survival, and long-term resilience of a community. However, the unexpected reconstruction cost increases in the aftermath of a disaster often impede post-disaster recovery due to limited budgets and amplify direct and indirect economic losses. A better understanding of the spatiotemporal effect of a disaster on reconstruction costs can improve disaster loss evaluations and post-disaster recovery planning.

Local and federal governments have enacted various disaster policies to accelerate post-disaster recovery and strengthen the resilience of a community. For example, thirty-seven states out of fifty in the U.S. have anti-price gouging legislation that regulates exorbitant pricing, denouncing it as an unfair or deceptive trade practice during a time of disaster or emergency. One of the intended purposes of this legislation is to stabilize the reconstruction costs increased by post-disaster demand surge and ration resources for a swift recovery from disasters. Federal Motor Carrier Safety Administration (FMCSA) waives certain federal safety regulations during a time of disaster declared by the President, Governors of States, or FMCSA. The U.S. Environmental Protection Agency (EPA) has temporarily waived fuel regulations to facilitate the fuel supply in the aftermath of disasters.

According to the consensus of climate scientists, it is expected that the occurrence and intensity of disasters will increase further in the coming decades. Measuring the post-disaster demand surge for reconstruction and examining the effects of various disaster policies are critical for a better disaster response system in the trend of increasing risks of disasters.

This research aims to understand the dynamic process of the post-demand surge in the reconstruction market by estimating the spatiotemporal effects of a disaster on construction wages in different quarters after a disaster using spatial panel data models. Furthermore, this research extends its framework to quantify the effects of various local and federal disaster policies on post-disaster recovery using difference-in-differences econometric techniques.

To achieve these research objectives, first, spatial panel data models with a difference-in-differences (DID) approach were developed to determine the spatiotemporal impacts of disasters on reconstruction wages in disaster-affected counties compared to the wages in non-disaster-affected counties. Then, spatial panel data models with DID approach were implemented to estimate the effects of disaster-related policies on the post-disaster reconstruction process by quantifying the difference in dependent variables (e.g., reconstruction costs and speed) between pre-policy and post-policy periods.

The findings of this study identified and estimated the spatiotemporal impacts of disasters on reconstruction wages and evaluated the various policy effects on the post-disaster recovery process. Reconstruction capacity gaps that cause reconstruction cost inflation were revealed one quarter after a disaster occurred. Also, statistically significant impacts of a disaster on reconstruction wages in the neighboring counties were found and quantified. Moreover, it is found that anti-price gouging laws, federal motor carrier safety regulation waivers, and environmental regulation waivers statistically significantly affected the post-disaster reconstruction process.

This research contributes to the body of knowledge by developing econometric measurement methods to estimate disaster impacts and evaluate policy effects in the post-disaster reconstruction management and recovery process. This research addressed fundamental limitations of existing demand surge models by (1) solving missing data problems with spatial multiple imputation methods, (2) creating spatiotemporal econometric models for quantifying post-disaster construction cost escalations and understanding a dynamic process of post-disaster reconstruction demand surge, and (3) evaluating and quantifying the impacts of disaster-related policies on the post-disaster reconstruction process. The findings of this research are expected to generate new knowledge at the nexus of three critical disciplines: Post-disaster Construction, Economics, and Policy Analysis. The proposed approach and discovery of this research will aid disaster mitigation and recovery agencies in better understanding a post-disaster reconstruction process, developing a greater construction capacity, setting effective reconstruction goals, initiating risk mitigation and resourcing strategies, and enforcing effective regulations and policies.