Discipline and disasters: The political economy of Mexico’s Sovereign Disaster Risk Financing Program

Disaster Risk Financing and Insurance (DRFI) Workshop Presentation

Discipline and accountability are important pathways to impact for Sovereign Disaster Risk Financing and Insurance (SDRFI) Programs (Dana and Von Dahlen, 2014). In particular, SDRFI Programs that feature objective mechanisms, such as parametric event thresholds to determine access to funding, limit politicians’ discretion following natural disasters, when they may face incentives to overspend on disaster relief (Healy and Malhotra, 2009). Rules and transparency also compel the government to commit to behave in a certain way or to face punishment by voters (Ferraz and Finan, 2011). But SDRFI Programs must be politically viable, and evidence suggests that voters demand overly responsive governments before elections (Cole et al., 2012). This policy note provides an early analysis of the effectiveness of one SDRFI Program, Mexico’s Natural Disaster Fund (FONDEN), at disciplining politicians in light of potentially suboptimal incentives provided by voters.