Who Pays? Cost-Sharing for Disaster Management in the US and Japan

Abstract

Whether national and local governments should assume larger financial responsibility for reducing disaster risk remains a controversial issue. Local governments lack resources to cover the full cost of managing mega-disasters and need assistance from higher level governments. However, national governments covering all costs may create moral hazards, discouraging local governments from investing in ex-ante measures. This study identifies national and local governments’ fiscal responsibility determinants for disaster management. Despite the differences between the federal system in the US and the centralized system in Japan, the two countries’ national governments share common practices. Both have continuously developed legislation to expand their financial responsibilities for relief and recovery efforts as disaster consequences have increased. We argue that despite major institutional differences in Japan’s unitary and the US federal government systems, both have expanded the areas covered by national assistance along with the amount over time. These findings bring with them recommendations for governments in an era of increasing extreme weather events due to climate change.