November, 2010

Restricting Reconstruction: Occupational Licensing and Natural Disasters

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Introduction: Since the tremendous devastation caused by Hurricane Katrina in 2005, there has been a re-examination of the appropriate response to natural disasters and the determinants of recovery. Past scholarship examined how to best define recovery (Baisden and Quarantelli 1979) and how the social, political, psychological and economic outcomes change because of the length and process of recovery (Qyarantelli 1998). Economists have since investigated government’s proper role given knowledge problems (Sobel and Leeson 2006) and the ability of the marketplace to assist or detract from the process (for example, Congleton 2006; Shughart 2006; Waugh and Smith 2006). This chapter investigates the impact of occupational licensing requirements on the recovery process. Shortages created by licensing are costly in normal times, but the social costs are even more burdensome when a large portion of the community suddenly demands the regulated services. Recovery slows due to these rising costs. This chapter examines occupational licensing in Louisiana, which maintained restrictions on roofers, plumbers and electricians after Hurricane Katrina. In contrast, Florida’s policy response reduced licensing requirements for roofers after major storms in 2004 and 2005. Policy delayed recovery in the former and encouraged it in the latter. This chapter also deploys qualitative analysis in order to understand people’s perceptions about choosing between licensed and unlicensed professionals in the wake of a natural disaster. Interview data provide information about how particular individuals interpreted their surroundings and what motivated their choice to use licensed contractors. Theoretically this is crucial, for as Israel Kirzner argues, ‘only in so far as we can find out what the knowledge and beliefs of the people concerned are in the relevant respects shall we be in a position to predict in what manner a change in the price of the product will affect the prices of the factors’ (Kirzner 1979, p. 138). Understanding peoples’ perceptions of the situation sheds light on the economic consequences of regulation. 

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