Black Swans and the Social Value of Corporate Disaster Giving

Abstract

Almost 85 percent of the deaths from natural disasters have occurred in low-income countries, yet more than 85 percent of relief coming from firms has gone to medium- and high-income economies. Does this mean a socially suboptimal allocation of economic resources? To assess this question, we study donations by corporations from 65 countries to the relief and reconstruction fund of all major disasters that affected the world from 2003 to 2013. Using a novel quasi-experimental method, we provide evidence that corporate giving efficiently specializes in disasters where the gap between the economic cost and the available sources for financing relief and recovery is the greatest. In such contexts, the competences and routines of the firm economically connected to the affected country generate a comparative advantage for the supply of relief and recovery vis-a-vis traditional public and multilateral donors. Because of these mechanisms, corporate disaster giving increases the speed of relief and recovery and mitigates the loss of social welfare by complementing public and multilateral funding in nations that have been historically outside the focus of attention of foreign aid institutions.