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Discussion of the collapse of the Soviet Union. Concise Encyclopedia of Economics. Property Rights , by Armen Alchian. Disaster and Recovery , by Jack Hirshleifer. Rent Seeking , by David R. Occupational Licensing , by David S. John Stuart Mill. On Econlib: Principles of Political Economy. Adam Smith. George Stigler.
Tjalling Koopmans. Frederic Bastiat. December Nina Munk on Poverty, Development, and the Idealist. January September Kling on the Three Languages of Politics. June Paul Romer on Urban Growth. March Pete Geddes on the American Prairie Reserve. Munger on Price Gouging. November Sunstein on Worst-case Scenarios. Milton Friedman Archive. Time Podcast Episode Highlights. More EconTalk Episodes. We first talked about this in December of ; and you actually confessed to me before we started recording that you went back and listened to that episode. Which excites me to no end. I did not. I kind of wanted to come back fresh to it, because I'm sure most listeners don't remember that episode.
That was a while ago. But that episode--we taped that, we recorded that a little over a year after the hurricane struck. We are now 10 years after that destruction. And you've been involved in a project assessing the recovery and what we can learn from it. So, talk about what that study has involved and what's been your role. Guest: Yeah. And so we went and we got support from various different foundations and whatnot to engage in a study to see how resilient and robust societies are in the wake of natural disasters. And we decided to go about doing that by establishing teams, different research teams, that would focus on different components of the rebuilding period.
And for the response and then the rebuilding period. And so we started making field trips down there, in the late Fall of , and then into , and made several trips. I was the principal investigator on that, but then we eventually would have teams that were either in residence or making very often trips there. And those scholars that were tapped for that were Russ Sobel, who was then teaching at the U. And then underneath of them we had other junior faculty and then graduate students. And the teams were divided up into those who would focus on public sector issues or what we called the 'political and legal leg', and then those who would focus on the social and cultural kind of ideas, civil society component.
And then the third one was the entrepreneurial or commercial society or market sector--private sector responses. So, if you think about it, you have a public sector, a private sector, and then a civil society sector. But we want--the study was, in detail, each of the various different aspects but then more important, the interaction between all three of those as you tried to both assess why the society is having difficulty coming back or why it is that it is succeeding coming back. And we wanted to sort of look at that question; and it turns out that New Orleans was quite an amazing place--tragic event made more tragic by a lot of follies.
But yet also a very uplifting story, if you focus on certain aspects of it, with regard to resiliency of civil society and the interaction between commerce and civil society. Russ: So, that's a very unusual plan, that you were planning to execute, and did execute. Most economists would probably look for some aggregate data on incomes or test scores in schools. They'd look across, maybe, neighborhoods or districts or parts of the city or parts of the state.
But this three-legged approach--which I am of course a big fan of--and doing field work is very alien to most economic research and is much more, what people would call, sociology. Guest: Right. Russ: What were you thinking in taking that approach? Why did you take that approach? Guest: It's a great question. I mean, there's a sort of a methodological aspect of this, an analytical aspect of it; and obviously then a practical, public policy or political economy, in the art of political economy sense of this.
I do think that we economists, you and I, were trained to think in terms of thin models and very clean data. And so we like to have, you know, large data sets that we can run statistical analysis on; and we get clean, you know, results based on [? And for some questions, it turns out that that's a very successful research strategy.
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At least it's proven to be one that is self-perpetuating. But in my own experience, in studying the former Soviet Union--so, I started my career studying the Soviet Union. It wasn't 'former' then. And my first works were on the origins of the Soviet system, and then on how that system operated, given the problems that we would associate from an economic point of view with the incentive structure and the informational constraints that a Soviet-type planning system would operate under: How could that system ever operate?
So there's kind of two ways to pursue that kind of research. One way was what you were suggesting, which was: Take the growth figures; re-estimate them, taking into account that the Soviet system was going to bias them in certain directions; and then try to come up with other growth estimates of what was going on in the Soviet Union. And that is what a lot of people did in economics. But another aspect of it was, is that that didn't really kind of capture what was going on over there.
And so, the idea was is that you had to sort of delve underneath, dig deeper, and get to like the real social interactions that were taking place to see how the failure in the planned system would generate, you know, markets and black markets, both in producer goods and consumer goods. So there was also a kind of an informal market that interacted to allow the planned system for the state enterprises to try to even pretend to meet their state, their output targets.
But then there was also this vast black market activity, which is how consumer frustrations in a shortage economy get alleviated to some extent. Not that they ever got really alleviated. You didn't have an alternative supply network in that system, right? So it wasn't like goods were sneaking in to get in there from the West to get in there except when you had limited tourists--so then you could sell them your Levi jeans or whatever.
But it wasn't like an open market, an easy supply network. So how do you understand how the Soviet system ticked? Just to give you one example, there's a study that was done in the late s that estimated the amount of black market dealings for gasoline in Moscow. Russ: Under the table. Guest: Under the table, or side-payments, to be able to get it. And all kinds of different things.
You know, the Soviet Union, it's not just like--I oftentimes say, 'Imagine the market for illicit drugs in the United States, then make it writ large for the entire economy. That's actually kind of more pedagogical than real. Because what happened is the Soviet markets had various different gradations in the official market. You know, so-- Russ: Like a bribe. Guest: Yeah, like a bribe, to an outright black market dealing, where a state shortage of buns and a state shortage of sausage leads to a sandwich out the back window. That's not the same thing as someone saying, 'Oh, admissions to college, yes, but it will cost you x number of dollars.
Anyway, so, if you are going to study that stuff, you can only study that because the official view is not clean and easy to get. And so instead you have to do field work, and you have to make access or use unusual data sources like memoirs, and you know, kind of more ethnographic data, to be able to actually get access to the information that enables you to study how this economic system operates. And then when the system started to collapse, it wasn't the textbook model that was collapsing. It was actually this, you know, Rube Goldberg kind of system that was in place that you were trying to then understand--and what the property rights were of that, and everything.
So that they were owned by all the people, but actually it was owned by these, you know, various different people in the party and whatnot. They just had control rights, but not cash flow rights. So, now, how am I going to change those property rights systems? And more importantly, for your question: How do I go about studying it?
And I'll just be very brief here. It's just: You can't just rely on studying the official system. You have to open up to study the unofficial system. Which means you have to, you know, get on the ground and get access to data which is very dirty. Russ: But I think it's more than that. I feel presumptuous telling you that. But let me take a crack at it.
I think, as economists, when we say things like, 'Oh, the market will solve that,' or 'The market won't solve that,' we have in mind sort of a black box of what markets are. If we can draw it--we can draw a supply-and-demand diagram; we can draw a supply-and-demand diagram with intervention that keeps it from reaching its, where the curves cross.https://ningconsfomorwa.ga/inverse-problemstikhonov-theory-and-algorithms.php
And we sometimes fool ourselves into thinking that's what's happening. Russ: But that's just a very stylized way of conveying some very simple things. They're very important. I don't want to understate their importance. Guest: Sure. Russ: It's extremely important to focus on those basics like what things are going to cost and whether there will be waiting in line and whether there will be a gap between what consumers pay and what suppliers receive because of a tax or because of waiting.
So that's all very important. But it's not what's going on in the street. And when you say, 'Well, that's not so important,' we're abstracting from that. That's the black box effect. What I think about, when I think about the Soviet Union's collapse and then the so-called aftermath, recovery, whatever you want to call it that's somewhat analogous to Katrina, is that a lot of economists use that black box--and the reason I said I feel presumptuous is: I've learned this from you.
So I'm going to say this, and you can chime in and say I got it right or I'm missing something. But what I think I've learned from you, and some other EconTalk episodes, is that a lot of economists had a very stylized story about the recovery: 'Oh, it's easy. We'll just put in property rights and we'll sell off these state resources, and markets will emerge.
And it didn't happen. Russ: And when you confront people with that--most of them don't--to be honest, I think most economists don't even want to think about it. And what I respect in your work, especially, is that you said, 'This is a learning opportunity. It's based on real law, property rights, and markets; and so, we just have to get there. And that these pieces didn't all emerge quickly. And so what I see your work and your methodological approach as doing is saying: 'Look, there's real value here in trying to understand how these pieces--in particular, government, entrepreneurship, commerce, and civil society, that is nonprofits and other voluntary activity--how they interact.
Because if we just wave our hands and draw something on the blackboard and run some regressions, we are going to miss learning about what we should be learning. Is that a good way to--? No, I mean, that's a better summary than I can ever give. I think that our first--if you go back to this post-Soviet context--let's say we Eastern-Central Europe in and then look at in Russia in , the first thing you think about is, 'Oh, these were shortage economies.
We know how to fix a shortage economy. You let prices--' Russ: Let prices adjust. Let the price adjust. So our first and foremost period of reform was: Get the prices right. And then, you know, that like didn't go as smoothly as we hoped, because we had to realize that prices are formed within an institutional context. And so you needed to have, you know, various different institutions in place.
And then that became in vogue to then say, 'Get the institutions right.
From the Graphics Archive: Mapping Katrina and Its Aftermath
Guest: Culture. And so then it's like, 'Get the culture right. So, even though it's so intractable, the culture issue, and you have to, for the pure positive economics of it, have to at least take into account that part, you also have to recognize that, yes, it's true that culture is this framework within which institutions are; and institutions sort of define or frame within which how markets operate.
And in these transition or crisis situations, it's the framework that's up for grabs. It's the thing that's fraying and whatnot. You know, I, one of my favorite EconTalks of all time, for you, because it's actually now been saved for all of us to hear, is Milton Friedman--the fact that you did Milton Friedman early on in your process and obviously before he passed away, so now we have it. It's there. And there's a fantastic one with him about monetary policy, and another one you did. But Friedman was famous in when he first toured China, and they said to him, 'Milton, how would fix things? Because, where do those institutions come from?
How do they get formed? How can we study them as economists rather than just treating them as given? And he wrote an essay called "Assume Anarchy. You have to study how those institutions come about. And that became a real impetus of what we were trying to do in our transition studies, in which we morphed out of Eastern Central Europe to then Africa and Latin America and even East Asia and whatnot. And then that became the impetus of what we thought we might do with Katrina. Russ: So, if I can just put on my sociology hat for a minute--and I don't have one, so you'll just have to imagine it.
But I think one way to talk about what Friedman was saying was that, when you say, 'rule of law,' that's not something you just say: 'Do you have it or not? There are many things in the United States, depending what city you live in, depending what county you are in, depending who is running the government this month, this year--how free you are to use your property as you see fit. And I think understanding that is part of what we're talking about here. Russ: So, let's move on to Katrina. So, the bottom line is that you try to do a much richer, wider-breadth look at the process of recovery, rather than just saying, 'Well, how much did GDP Gross Domestic Product go up this quarter in the city of New Orleans?
What happened to sales tax revenue? And we wanted to see the interaction between these various different ideas, mainly to see how--so, again, you know, we take a lot of these inspirations from different people. So, John Stuart Mill has a great quote in the Principles of Political Economy where he says that one of the most amazing things that we see in human history is the great rapidity with which countries bounce back from famine, war, earthquakes, fires, whatnot. So, we took that idea and we wanted to say, so what are the conditions under which Mill's proposition is true?
What are the conditions under which it would fall away? So, one of the conditions that Mill says explicitly is: Complete depopulation. So, you know, if you came in and you know, something happened--an asteroid hit--and it wiped out--a small asteroid hit--so it wiped out like a whole country or whatever: yeah, that country is not going to come back tomorrow.
And so that--we understood that. But somewhere in between that and-- Russ: The electricity goes off for a week. We want to see how they form. In fact, one of the really made-me-sit-up in my seat and realize how, you know, sensitive these issues are, is in one of my early trips, we went and met with a gentleman who was one of the leading, you know, business people in New Orleans. He took us to the top of his office building. And it still was the case when we looked out from over [? And he sat there and we were talking about what we were trying to do, and he turned to me and he said, 'Look.
I understand. You guys are very excited, because not every time that you can fill the rat maze with water and then see what the rats do. Guest: And I sat up and I said, 'No--[? But in some sense, that is what we were doing. But it made me realize that we are talking about real people, real lives; and we need to be very sensitive to the way that we think about, you know, this; because that's different if I were studying the rats.
Pete Boettke on Katrina, Ten Years After - Econlib
Guest: I wouldn't worry so much about--but these were real people and they were really affected. So you had to always balance that because we are who we study, and what we were trying to do was we were right in the midst of a lot of this when the nerves were still very raw. Russ: Tell us what some of the lessons that you've taken from that, from the work.
Guest: You've talked--when we talked in December of , I went back and as I said, I listened to it. And one of the things that I always like to stress when we start doing this is, first, at the moment of the crisis how people that were on the ground, there, mainly in this instance the churches and church leaders, played such an important role in getting people out of harm's way.
And that isn't recognized enough because we always think of that as being the role of government to do. But it's phenomenal what the network of Southern Baptist Churches did. And also what the network of yacht club--boating clubs--did, where they came in, in little skipper boats and got people out and got people to safety that otherwise would have been stranded. And even in some of these instances like with the Church, they actually were violating the official rules, which said that people weren't supposed to be going in and out of the city like that.
Because they were trying to control the evacuation or control the, centrally control how they were going to do the protection in the wake of the storm. And these were very, very courageous young people--one couple that we met was a youth ministry couple in central city New Orleans, and they really just responded. It was like your neighbors at this time were going to help. And obviously we hear the tragic stories of people being trapped in the 9th Ward or wherever and then at the Superdome, and those are the images that we have in our head.
And those were very tragic aspects. Russ: And real. Guest: And real, and no one is denying that. But it is pretty phenomenal, the amount of effort that civil society expended and the resilience that they showed in the face of very difficult times. And I think we should celebrate that more, the human capacity for compassion and just getting the job done is a lot greater than we often think. Russ: Yeah. We talked with Paul Robinson recently about, in life or death situations, a cooperative urge somehow can often spring into action, and people can take risks for their own safety and do great things for their neighbors.
Guest: So, that's the first thing that comes to my mind; and I really want to stress that. And that even comes back to the--so that's in the immediate response. But you also see varieties of this sort of strength and resiliency of civil society throughout the process, from response to recovery to rebuilding, to today, getting on with your life. And it's not perfect, and there's still a lot of lingering difficulties. But there also are some real heroic examples, and I think that we should pay more attention to that.
Robert Putnam kind of made the argument that right before all of this happened, in the s, that we were in fact becoming more atomistic, less connected to our neighbors. Russ: This is Bowling Alone, right? Guest: Yeah, Bowling Alone kind of idea. And I think that he just misidentified where people were finding their new forms of civil society; and that civil society isn't dead in America. It hasn't been completely crowded out, though I think it's not as vibrant as we could tap into. But when pressured it can actually respond quite well. And I think that that's one of the lessons that we learned from Katrina.
Russ: What about--talk about what happened in the education sphere, to schooling. Guest: Well, one of the things that you should understand right up front is that New Orleans had some of the worst schools, if not the worst schools in the country, prior. And so you have to ask this question: there's a variety of ways in which Katrina studies have gone in and looked at what's gone on with charter school movements and whatnot, afterwards. Russ: Because a lot of schools--well, you tell me. The public school system was gone for a while, right?
Or is it--what was the status? Guest: Well, okay. So, one of the really great stories is in the St. Bernard Parish, this woman who was the Superintendent of Schools in that parish, Doris Voitier--she understood that in order to get the workers back, you would need to have your schools up and running. Because it's a coordination problem: I'll come back if you come back. And I'm not going to come back if you don't come back. And so they needed to have all of that, like normalcy of life back for the workers to return back and sort of build their lives back up again, return to their homes, rebuild their homes, all that stuff.
And again, the incentives get a little goofy here because FEMA Federal Emergency Management Agency had extended their payments for not working for a longer period of time. People moved to Houston; they look around and they're like, 'Hey, Houston ain't half bad compared to where I was living New Orleans'. A lot of people did not go back. Guest: But what she did--and it's a kind of--so, they did a mix between her private effort, or her efforts as well as in the public schools. So, it's not like they were independent schools.
She's a public employee, right? Working within the public school system. But she's acting very independently to help get people going there. Does that make sense? So, what did she do? Guest: Well, in her case, what she did was she opened the school much faster than they thought they were going to do. Various different officials, FEMA and whatnot, said, 'You'll be able to reopen your school in, let's say, 18 months.
And of course you can even see, like there's an HBO Home Box Office on one of the independent schools because they went to the state finals in basketball the next year, in which there was a conglomeration of a bunch of public schools and they put them into a school and they ended up having a decent team and helped rebuild back the community and build things.
With Doris Voitier, what she did was she got the FEMA trailers, and she was able to use them; and when they didn't send them to her fast enough she would go and act very entrepreneurial and get them from some other place that had FEMA trailers. Then, later on, they complained to her that she was misusing funds, you know, because she wasn't--she was just, like, a real bulldog to make sure that she could get her school district set up. One of the trailers didn't have the right dimensions, so it was determined that it couldn't be used for school use.
But it was just sitting there, vacant, on the lot. But her teachers were back and they didn't have a laundromat.
So she turned this trailer into a laundromat. And then this new bureaucrat came in, you know, who's got his pencil and pad of paper, and he's like 'This trailer is not supposed to be used for that. And you are violating the law. And so she's very publicly entrepreneurial, but it's kind of this mix. Then you also have private schools, like the Catholic schools, trying to get their communities back, and how they opened up as well very soon after; and again, schools understood that in order to get the people back, they had to have a place for the kids to go back.
And so it became a very big part of the community. I think that part of the story is a kind of significant part. And then, now, there's been this discussion of what's happened with the various different charter schools and their results. And I think that I don't really have that on the top of my head. Russ: It doesn't matter.
Because one of the most obvious problems with those kind of analyses are, it's not the same people. Because a lot of people left, and the people who left or then came back are not the same people as the people who decided to stay. So I'm not sure how to interpret those results. Which I'm sure doesn't stop a lot of people from arguing about them.
Guest: There's a lot of questions there about the density of the population and where you build. So, yes. To go back to originally when we first saw it, one of the things that we wanted to try to do was maybe do a comparative study between Biloxi and New Orleans.
Similar like you might do a study between Poland and the Czech Republic in the post-Communist period, right? And we gave up on that idea very quickly because the conditions were so different from the initial start state. From the simple reason of the effect of the storm. Whereas in one area the storm came in and went out; and another where it came in and it sat.
That changes a lot of the dynamics of what goes on. And so--but originally that was our idea: we were going to try to do this comparative study between Biloxi bounceback versus how New Orleans bounced back--what could we have learned from this comparison? But we gave up on that idea within, you know, like 3 weeks of originally studying it. And I think that's a similar idea to what you were just talking about with schools. Because it's not the same thing. You are not comparing apples and apples. Russ: So, I interrupted you to ask you about schools. Let's go back to the more general question.
I asked you what you had learned; what are the most important things you learned. One of the things you said was the role of the churches.
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What else is an important takeaway for you? Guest: Okay. So, also the role that entrepreneurship and commercial life plays in not only supplying initial responses but bringing a normalcy back to life--that if you can't have a commercial life, you are not going to rebuild. Those things go hand in hand together. And so the importance of not only small mom-and-pop shops getting started, restaurants and whatnot, but also the big box stores. How Walmart played a role in all of this, Home Depot.
Large pharmaceutical, drug stores like CVS and Rite Aid, I think, and how they are very much a part of your communal life and make living happen. Russ: So, let me take this in an obvious and very different direction. When I interviewed Nina Munk about the Millennium Villages Project, her sort of bottom line assessment, the way--I mean, the reason it was, to me, such a memorable conversation, was her summary, which was two words: Nothing grew.
Yes, there were some injection of cash and wellbeing and some activity. But when it receded, when the injections stopped, what was left? And again, this came up indirectly in my conversation with William MacAskill. Thank you so very much. God bless. My sister has lost a son in a terrible car accident at age 20 and a husband to suicide, footsteps has always been my go to, I just sent it to her, I hope it helps her just a bit. I couldn't get a grip on my bad times I didn't feel grounded to walk the path of self destruct at that time, it was the wrong path to walk, I was held in a place i didn't like!
I didn't even try to fight! I would have lost the battle of not knowing which way to go? I must have being held till the darkest times past as my footprints felt they were made of stone! I've been carried some how out of this and the poem is a reminder of how not to quit! I love this poem! I first read it 40 years ago and I always come back to this poem when I need some uplifting. I have been through some pretty dark times in my life and new that all along God was by my side even at times when I didn't recognise it!
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As I read in one of the comments. God has carried me at the most difficult times of my life. I have never felt alone. I know he has always been by my side. A place they felt they would be at see again. As other's say. God is my life. Jesus didn't say the road would be easy but He said He's d never leave us. A wonderful sentiment a real blessing. I love this. I came across it in in my own challenging moment and I was indeed refreshed. It has remained in my memory where it glows and encourages me not to give up.
God gave his Word but many are they that publish it. May the Lord bless you all exceedingly. I found the title of this poem in my daily guide scripture Union I feel overwhelmed with this,this is really great. That's wonderful I feel consoled by this fact that He never leaves me even when it is toughest. I love you all and I pray and wish that your words will bring blessing and knowledge of our Lord jesus christ to me. Only The Bible.
The author lives in Australia and is active in mission projects locally and abroad. While there is a rich literature on proposed theoretical models of decision making under uncertainty  ,  , decision making related to catastrophic events is not well understood . These events are rare, exhibit high levels of uncertainty, and offer few objective sources of information, limiting opportunities for systematic study based on empirical observations and formal methods of statistical inference. This is especially true regarding business decisions after a major catastrophe such as Hurricane Katrina.
In general, we know more about how individuals make decisions in situations involving risk  —  , but very little about decisions by businesses, groups, and organizations, which have large direct as well as indirect or spatial spillover impacts on the community at large. Moreover, literature directly addressing the relationship between business recovery and natural disasters remains sparse and mixed  — . A better understanding of factors influencing business decisions to return after a major disaster requires fine-scale empirical observations collected in a timely manner.
This type of information allows analysis of spatiotemporal changes in factors that influence decision making as well as interdependence between decisions made by one establishment and its neighbors. The ultimate goal of fine-scale analyses is to derive empirical rules so that quantitative models can be developed to understand and predict business return after a major disaster. The discussion here focuses on a project to collect and analyze time-critical data on business return in New Orleans after Hurricane Katrina.
We employed two types of data collection: telephone and street surveys. The telephone surveys involved all businesses in the Orleans Parish prior to Katrina and were timed to reflect a short term, intermediate and longer time interval, with the first short term taking place in December , the second intermediate term in June , and the third longer term in October The purpose of multiple-round surveys was to capture the spatial and temporal dynamics in factors viewed as important by businesses in their decision making, and enable subsequent quantitative modeling and prediction over both time and space.
The street surveys were conducted weekly for three major commercial corridors for over three years, starting October The three commercial corridors chosen for the street survey included: St. Claude Avenue, which experienced light flooding after Katrina, traverses a struggling, working-class downtown neighborhood; Magazine Street serves middle- to upper-class uptown neighborhoods and suffered no flooding; Carrollton Avenue traverses both middle-class and working-class neighborhoods and suffered extreme flooding in some areas, some flooding in most areas, and none in others.
These three corridors transect a wide range of socioeconomic, historical, and topographic conditions in the city, providing a useful means for comparison and validation with the results from the telephone survey. We present analyses of business responses based on the three telephone surveys reflecting short, intermediate and longer term attitudes about factors that might influence decisions about re-opening after the hurricane. There was evidence of changing business views over the three different time intervals, and differences in responses when businesses were stratified according to their opening and flood statuses.
Our survey results based on data collected over the two-year period following the disaster provide a rare but useful look at business attitudes that may influence decisions about re-opening in the aftermath of a disaster. The time-series telephone survey results were analyzed to answer four major questions:  which types of businesses returned to operation most rapidly after the disaster and where were these located?
In addition, we were interested in patterns of change in the types of businesses that re-opened over the intermediate and longer time horizons. In addition, we were interested in whether the responses of open and closed establishments changed over the various time horizons. The survey response statistics Table 1 reveal a grim picture of business openings in New Orleans in the first two years after Katrina. The second survey reflected the intermediate term around 10 months after the disaster when uncertainty about the future was reduced.
We linked business openings with their geographic locations through the use of geographic information system GIS methods, and computed the business opening rate as a percentage of all businesses in each census tract for all the tracts in Orleans Parish. For visualization purposes, the results were mapped using a kernel density smoothing method instead of the conventional tract-level choropleth map. This allows a comparison that emphasizes the uneven business density in the study area before and after Katrina.
A map showing flood depths immediately after Katrina September 2, is also shown Figure 1. These tracts with low re-opening rates were mostly located in areas that had higher flood depth in the eastern part of Orleans Parish lower Ninth Ward , the mid-city, and Gentilly areas. These results show a significant improvement in current business prospects between December and June the first and second surveys , with an average rank score decreasing from 2.
However, current business prospects remained virtually the same between the second and third surveys rank scores of 2. The question was not included in the first survey. The average scores for the recovery progress improved from 2. When business owners were asked to rate a series of problems considered barriers to return in a post-Katrina environment, the main concern was levee protection in the first survey, with an average score of 3. At the time of the second survey in June levees were still the greatest concern with an average score of 3.
These were followed closely by two more barriers: damage to business premises 3. In the third survey, crime became the top concern, reflected in the average score of 2. These results show that immediately after Katrina, levee protection was considered the most important problem by business owners. As the city recovered during the ten months after Katrina, levees were still the major concern, but utilities and communications joined this as equally important concerns.
Twenty-six months after Katrina, as utilities and communications were re-established and work on levee protection was underway, business owners focus turned away from these larger infrastructure issues to those affecting their day-to-day operations. This is reflected in higher scores for items such as damage to business premises, lack of employees, and crime.
Issues that were prominent in the second survey were no longer prominent in the third survey. These results coincide loosely with timing of an announcement by the U. Army Corps of Engineers to rebuild and strengthen the current levee system by June The overall response results presented above were based on all businesses without consideration of the responses stratified by characteristics such as business type, status of the business as open or closed, and the depth of flooding affecting the establishments.
A closer examination of survey responses reveals important differences when stratified by these variables. For example, in the second survey, although levee protection, utilities, and communications were identified as the most important barriers using average rank scores, responses exhibited a bi-modal distribution falling in the two extreme categories ranks 1 and 5 [Supplementary Table S2 ]. In other words, about half of the businesses surveyed reported levee protection as the most important barrier, and half thought levee protection was the least important barrier.
This bi-modal pattern also existed for barriers such as utilities, communications, damage to premises, and lack of employees. This dichotomy of responses reflects the complexity of factors that influence business return decisions. It also indicates that almost every business had major concerns that impacted decisions to re-open, but these concerns were not necessarily the same for all firms. To further explore this issue, we consider responses stratified by business subgroups. A tabulation of the survey responses according to the seven business groups shows that Group 1, which included businesses in mining, utilities, construction, manufacturing, agriculture, forestry, fishing, and hunting, generally assigned higher barrier scores than other groups Figure 3C.
Levee protection was the top concern for this group, followed by the lack of employees, communication, and governmental problems. Group 3, which included businesses in information, finance, insurance, and real estate FIRE , generally assigned the lowest barrier scores of the seven groups. The biggest contrast is that levee protection was ranked the highest 3. In contrast, top barriers for Group 5 were a lack of employees and customers, while the latter was considered the lowest barrier for Group 1 businesses. These results indicate a great deal of variation in survey responses within and between groups, with no discernable pattern.
A formal statistical discriminant analysis was conducted to determine if the groups could be clearly distinguished using the 11 barrier variables. The barriers were perceived as even more important by owners of businesses still closed during the second survey, as indicated by survey response scores that were consistently the highest across all barrier variables.
The top concern for businesses that remained closed shifted from levee protection in the first survey to damage to premises in the second survey. In the third survey, ratings of barriers by the businesses that remained closed were not consistent across the barrier variables. Financing became the top concern, followed by the lack of employees and levee protection.
Based on the structural matrices derived from the discriminant analysis, the most important variable that distinguished between businesses that were opened versus businesses that remained closed was damage to premises in the first time period. In the second and third time periods, financing became the top variable that distinguished those businesses that were open from those that were not.
From an economic theory perspective, the difference in responses between open and closed businesses makes sense. For an open business, there is no marginal additional cost to open and so their concerns are with customers, employees, and other typical business challenges. If the business is profitable, it may pay to stay open even if another catastrophe could occur at any time. The potential for a catastrophe reduces the time horizon and thus the value of the business whether it is held by the existing owners or sold to new owners. Therefore, for a currently opened business long-term problems such as the potential damage from a natural disaster reduces the value of the business, the amount of optimal investment in the business, and the potential long-term market for their goods and services.
For a closed business, the marginal cost of opening may be substantial and there has to be enough long-term benefit to support the substantial costs of re-opening. Therefore, a closed business must pay more attention to long-term prospects than an open business. Nonetheless, both types of firms profit as the long-term outlook improves, although the contrast is greatest for the closed firms. Since the initial survey did not include a question regarding flood status, we derived this information by linking business locations with the LIDAR image data to determine whether each business in the survey was flooded or not.
In the second and third surveys, a flood status question was included. Businesses that were flooded gave higher scores than those that were not flooded. The barriers were perceived to be more serious in the second time period, as businesses that had been flooded gave the highest scores for almost all barrier variables Figure 3A ; Supplementary Table S6 , with damage to premises ranked the highest, followed by levee protection and communications. The most important variables that distinguished those businesses flooded from those not flooded were very consistent for the three time periods.
These were: damage to premises, followed by utilities in the second survey and levee protection in the second and third surveys. In the absence of flooding, there is no marginal additional cost to open and so concerns of non-flooded establishments center on customers, employees, and other typical business challenges. For a flooded or closed business, the marginal cost of opening may be substantial and there has to be enough long-term benefit to support the substantial costs of re-opening.
Literature directly addressing business return after a major natural disaster is relatively limited. Moreover, the findings from the already scanty literature are mixed and sometimes contradictory  , . Some studies argue that disasters have few effects beyond the immediate or short-term recovery periods  ,  , while others conclude that at most, natural disasters exacerbate existing trends  , .
Yet another group of studies actually suggests that climate-related disasters have long-term positive economic consequences related to physical capital, human capital, and productivity  , . Furthermore, most studies have been conducted at a regional scale, which may obscure heterogeneity in impacts of disasters on local communities. Conclusions about the economic impacts of a natural disaster made at the broad regional scale may be very different from those derived at finer spatial scales. At a broader scale, earlier studies suggested that business decisions to locate or relocate could include factors such as future hurricane risks, economic impacts, insurance rates, emergency support, and market potential  , .
At a local fine spatial scale, the literature generally shows that small businesses and non-profit organizations do not recover from major disasters  , citing the ability, or rather the inability, to adapt as a crucial variable for these small businesses to recover . For example, a study of the Northridge earthquake found that small businesses were more vulnerable and less likely to recover . They found that most businesses did not experience long-term declines, and that retail businesses were less likely to recover after a natural disaster.
However, they also acknowledged their study might be biased because surveys were conducted six and eight years after the disaster events. Based on Webb and others' findings, Waugh and Smith inferred that New Orleans would have a more difficult time recovering from Katrina due to its large tourism industry that consists of many small retail businesses . Kates and others also pointed to a long reconstruction period for New Orleans noting the declining population trend of the city .
There is also a body of literature on vulnerability and resilience which could be used to shed light on our study of business decisions to re-open after a major disaster. However, the existing literature has seldom addressed how individual businesses aggregate to create a community  — . Webb and others suggested the need for a multi-level conceptualization of long-term business vulnerability and resilience following disasters, which would include not only firm-level characteristics, but also neighborhood characteristics and the broader natural and socioeconomic environments  , .
More recently, Zhang and others proposed a conceptual model of disaster impacts on businesses and identified a number of key factors that would increase or decrease business' vulnerability . Although their models were not fully developed, their work highlighted the need for public policy research to help reduce business vulnerability to natural disasters. For the most part, our findings support findings reported in past literature. Similar to previous studies, businesses in the professional, scientific and technical services were found to open more rapidly in the aftermath of Katrina, whereas businesses in educational, health care, social assistance, and public administration suffered most during the immediate aftermath first four months.
This equaled the overall average rate of return for all businesses at the two-year horizon. Unlike previous studies, we were able to include responses from individual businesses that remained closed at the time of each survey for a sequence of three surveys reflecting short-, intermediate- and long-term horizons for the aftermath of the Katrina disaster.
The responses from businesses open and closed were significantly different, as revealed by a statistical discriminant analysis. Both groups of firms identified levee protection as the prime concern in the short-term, but diverged regarding which factors represented the greatest barriers to business return in the intermediate and longer-term horizons.
For example, damage to business premises and financing problems were viewed as major obstacles by businesses that remained closed, whereas utilities, communications infrastructure and crime were major concerns of businesses that were open. Similar differences in responses were found for businesses that were flooded versus those that were not.
From an economic theory perspective, the difference in responses between open and closed as well as flooded and non-flooded businesses makes sense. As elaborated earlier, for an open business, there is no marginal additional cost to open and so their concerns are with customers, employees, and other typical business challenges.
For a closed business, the marginal cost of opening may be substantial and there has to be enough long-term benefit to support the substantial costs or reopening. In addition, open and closed businesses differ by their inherent vulnerability to disasters.
If a business closes due to flooding, in the absence of more infrastructure the flooding will likely reoccur.