The use of knowledge in natural-disaster relief management.

• Author: Sobel, Russell S.

More than sixty years ago F. A. Hayek identified the problem of social coordination in his seminal article "The Use of Knowledge in Society":

The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form, but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess. The economic problem of society is thus not merely a problem of how to allocate "given" resources--if "given" is taken to mean given to a single mind which deliberately solves the problem set by these "data." It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only those individuals know. Or, to put it briefly, it is a problem of the utilization of knowledge not given to anyone in its totality. (1945, 519-20)

Hayek's critical insight, later called "the knowledge problem," highlighted two central features of social organization. First, every society confronts a "division of knowledge" analogous in many respects to the "division of labor." Information is fragmented, diverse, and often contained in inarticulate forms, held separately and locally by the many individuals who compose society. Second, the foremost obstacle that every effort at social coordination must overcome is somehow tapping into this dispersed information and processing it in forms that individuals can use to achieve their ends mutually.

In this article, we investigate natural-disaster management, using Hayek's key insight about the fundamental "knowledge problem" that all efforts to coordinate social activity must solve. We argue that natural-disaster management is no different in this regard than the coordination of individuals in "normal" economic contexts. Following a natural disaster, on the one side there are "relief demanders"--individuals who desperately need disaster-relief supplies, including evacuation, food, shelter, medical attention, and so forth. On the other side, there are "relief suppliers"--individuals ready and willing to bring their supplies and expertise to bear in meeting the relief demanders' needs. On both sides of this "market," information is decentralized, local, and often inarticulate. Relief demanders know when relief is needed, what they need, and in what quantities, but they do not necessarily know who has the relief supplies they require or how to obtain them. Similarly, relief suppliers know what relief supplies they have and how they can help, but they may be largely unaware of whether relief is required and, if it is, what is needed, by whom, and in what locations and quantities.

We argue that effective natural-disaster relief management, just like successful social coordination in "normal" circumstances, must solve Hayek's knowledge problem. Specifically, effective disaster management requires efficient information generation at three critical stages. The first is the recognition stage: Has disaster occurred, how severe is it, and is relief needed? The second is the needs assessment and allocation stage: What relief supplies are needed, who has them readily available, and what areas and individuals need them the most? The third stage is the feedback and evaluation stage: Are our disaster-relief activities working, and what, if anything, needs modification?

Hayek suggested a solution to the knowledge problem in the context of economic decision making in general. Given information's decentralized nature and its importance for achieving social coordination, he argued that it was important to allow decentralized private actors, such as those participating in markets, to direct the bulk of economic decision making. Unlike markets, central planning has no way of tapping into this information in a productive way, as Hayek argued:

If we can agree that the economic problem of society is mainly one of rapid adaptation to changes in the particular circumstances of time and place, it would seem to follow that the ultimate decisions must be left to the people who are familiar with these circumstances, who know directly of the relevant changes and of the resources immediately available to meet them. We cannot expect that this problem will be solved by first communicating all this knowledge to a central board which, after integrating all knowledge, issues its orders. We must solve it by some form of decentralization. (1945, 524) Using Hayek's insight, we compare the government's ability and the private sector's ability to generate the appropriate knowledge at each of the three critical disaster-management information stages. (1) Consistent with Hayek's argument, we find that decentralized, private decision making effectively generates the appropriate knowledge at each stage. Centralized, political decision making, in contrast, by its very nature cannot do so.

Our analysis points to information acquisition and exploitation as the fundamental failures of government's disaster-relief management. Government's informational deficit in the disaster-relief context is an unavoidable outcome of the centralization of disaster-relief management when relief is provided by the state. Disaster-relief reforms that leave government as the primary manager of natural disasters are thus bound to fail. Correcting government's information failure in the context of disaster relief requires eliminating its root cause: government involvement itself. Although our discussion focuses specifically on Hurricane Katrina, the information issues we analyze provide important general lessons about disaster-relief management.

Information Stage One: What Disaster?

Information depends fundamentally on the institutional context in which it is created. All institutional contexts develop some kind of information, but very few generate the kind needed to coordinate spatially and temporally separated suppliers and demanders. In the context of disaster relief, the first piece of critical information involves whether a disaster has occurred and thus whether relief assistance is needed.

Information about the occurrence of a disaster and the need for disaster relief might seem straightforward. However, when disaster-relief management is politically centralized, it is often not. Perhaps surprisingly, the vast majority of disasters declared over the past decade have been for weather events that most people would not consider disasters at all, such as severe thunderstorms, wind, and snow (Garrett and Sobel 2003). However, some seemingly major disasters have gone undeclared. The disaster declaration process is clearly more complex and subjective than it first appears.

When disaster relief is centralized and managed by government, it necessarily becomes bureaucratized. Government agencies such as the Federal Emergency Management Agency (FEMA) are created to oversee and administer relief. These agencies in turn are overseen by other government agencies, each with its own internal bureaucracies, and so on. Following organizational changes after 9/11, for example, FEMA was placed under the umbrella of the Department of Homeland Security, adding new political decision makers to the mix. The layers of bureaucracy ultimately end at some key administrative figure--the president, in the case of disaster relief--who must declare a disaster before FEMA can act. At each level of the bureaucratic process, a key political decision maker must give his approval before a proposed action may be considered at the next layer of the bureaucracy.

Bureaucracy is a necessary and unavoidable outgrowth of state-run activities. It is necessary because government agencies, unlike private firms, whose activities are guided by profit seeking, have no such guide (Mises 1944). Private firms seek profits and consequently have but one rule for their managers: maximize profits. Managers who contribute to the firm's goal and make profits can be rewarded and retained, whereas those who do not contribute can be punished or released. Owners' ability to measure managers' contribution to this goal rests on monetary profits and losses.

Government agencies, in contrast, cannot make do with one rule for their "political managers."...