The tsunami that affected Asia and African countries in December 2004 was one of the most destructive natural disasters in recent time s. Aceh alone suffered an estimated 167,000 deaths and 566,000 displaced persons (USAID, 2005). The response by donor countries and individuals was swift and unprecedented in magnitude, however, after more than one year, thousands of families remained effected by corruption and were forced to huddle in tents instead of living in permanent housing (TI, 2010). Review studies such as Mitchell (2010), show that the outcomes achieved through the aid response we re inefficient and inequitable. Natural disasters, especially when they occur in developing countries, strain government budgets significantly. With large populations (among donors or beneficiaries) believing provisional aid is substantial when in reality it is small (Mitchell, 2010), powers amongst NGO lobbyists growing, and the media’s willingness and ability to distribute damaging stories about corrupt aid practices (Oxfam , 2010), it is easy to see why national governments, eager to appease electorates (presuming they are democratic of course) and the international community, are motivated to provide effective natural disaster aid. In this context, giving aid to countries plagued wi th corruption poses a difficult dilemma. This paper highlights market failures in natural disaster aid using the case of Aceh, and recommends a strategy that adjusts government agents’ incentives to take a path that could arguably assuage the problem of corrupt ion by reducing the severity of the moral hazard problem in an afflicted government.
Voter Response to Natural Disaster Aid: Quasi-Experimental Evidence from Drought Relief Payments in Mexico