Strengthening Resilience and Sustainability for Post-Disaster Recovery: A Comparative Law and Economics Analysis on Smart Mixes Between Mechanisms

Abstract

This article advocates smart mixes of mechanisms of post-disaster recovery in terms of boosting resilience and sustainability through liability rules, government intervention, insurance, and their combinations. Liability rules can provide compensation to victims and, in theory, also reduce disaster risks, while they have their limits in practice. The government widely intervenes in disaster compensation in many countries, but it faces challenges in how it can intervene fairly and efficiently, whether through informal channels, such as ad hoc charity, or structured approaches, such as compensation funds. As governments may struggle to provide efficient and effective compensation ex post, insurance may offer proactive solutions with models of first-party catastrophe insurance and third-party liability insurance ex ante. Where market failure, liability failure, and government failure may all arise, a smart mix of mechanisms is often preferable from a law and economic perspective, rather than relying solely on one framework. However, upon examining empirical evidence regarding the effectiveness of these instruments in China, the UK, France, Germany, and Turkey, it becomes apparent that a mix of mechanisms is not always applied in an effective manner. Models of mandatory comprehensive disaster insurance, and Public–Private Partnership (PPP), which both receive government intervention as a last resort to the market and liability failures, can reach the goal of more effective compensation for disaster victims, risk prevention and resilience when faced with disaster recovery, and should therefore be substantially implemented beyond the current levels. To be clear, the proposed mix of solutions mainly focuses on legal and economic dimensions which are rather limited, ignoring, for example, building codes for structures and physical interventions.