Market mechanisms

Market mechanisms that support disaster recovery may not fully address the economic impacts.

Market mechanisms that support disaster recovery may not fully address the economic impacts, which can be far-reaching and longer lasting than the immediate and direct damage to individual businesses and economic infrastructure.

In responding to the economic impacts of emergencies, market mechanisms typically focus on direct, tangible impacts such as physical damage to infrastructure or the impact to an individual business. While these are immediate and obvious economic consequences of an emergency, the economic effects can range far more widely in scale, timeframe and visibility.

The impacts range from immediate and intense, such as loss of personal income or damage to business premises, to long-term and chronic, including loss of workforce due to displacement, reluctance of tourists to travel to hazard-prone areas, or prolonged financial strain on communities due to industry downturn.

The Australian Institute for Disaster Resilience Community Recovery Handbook32 outlines a method to understand economic impacts, consequences and recovery management by evaluating the direct and indirect impacts across the following affected sectors:

  • residents and households
  • public infrastructure, community facilities and the natural environment
  • business enterprises and supply networks (retailers, distributors, transporters, storage facilities and suppliers that participate in the production and delivery of a particular product), and other networks including peak bodies and not-for-profit sector
  • government.

The direct and indirect impacts, as illustrated by the events that unfolded after the tragedy at Port Arthur in Tasmania on Sunday 28 April 1996, where 35 people were killed and 22 injured by a gunman, were significant for both the State and the Tasman municipality. Port Arthur itself was closed for three weeks and although some of the businesses suffered badly, others received additional business from the media and government agency personnel who came into the area. The estimated net effect of the loss of approximately 130,000 visitor nights meant $15.6 million less for the Tasmanian economy and the estimated loss of 400 jobs in the tourism sector. At a regional level, businesses were down around 28 per cent on the same period a year after the disaster which equates to approximately $5.32 million or 166 jobs.

Furthermore, although the State Government contributed to expenses incurred by the local council, residents experienced a rate rise, although it was acknowledged that everyone in the community was hurting and endeavoured to keep any increases down to a minimum:

Chronic impacts are less obvious, typically take longer to manifest, and can be more difficult to address. Examples include erosion of community services due to reduced property tax base; loss of workforce due to long-term displacement or voluntary relocation of workers and employers; reduced productivity of agricultural lands and fisheries; and a reluctance of new businesses to locate in hazard-prone areas.33

These longer-term, often intangible, impacts are often overlooked by market mechanisms such as insurance, or by community recovery efforts, particularly where the impacts are felt by businesses or sectors of the economy not directly affected by the disaster itself. Evidence suggests that the costs of these impacts, although difficult to quantify, can be substantial and, in many cases, can cause a domino effect with profound impacts on communities long after the immediate impacts of a disaster have dissipated"

...from 2011 to 2013 the northern NSW fishing industry was severely impacted by a series of floods. The floods caused damage to fishing gear, equipment and fishing infrastructure. However, of more significant impact were the loss of income due to the flood’s impact on fish stocks and the health of the waterways. The financial assistance provided to the fishermen to recover from these impacts did little to address their actual needs. Fishermen are faced with a loss of weekly income due to the loss of fish stocks within the flooded waterways. However, the finance package provided covers for the loss of gear, infrastructure or cost of clean-up, not assistance to deal with the loss of income due to the floods impact on the waterways.34

...the consequences of trading and production down-time can result in bankruptcy, forced sale, business closure, loss of experienced workers, a depleted customer base and population shrinkage. These consequences are exacerbated by community losses resulting in a reduction in disposable income.35

This analysis provides some useful insights into the potential targeting and scale of the economic recovery response, suggesting that the desirable mix of interventions should focus both on ensuring the continued operation of directly affected businesses as well as maintaining economic activity across the affected location for indirectly affected businesses. In particular, the literature warns of the risk of a strong immediate focus on reconstruction of economic infrastructure that may mask deep-seated and ongoing impacts such as population decline and poor business performance, which, if not addressed, will impede economic recovery in the long term.36 This suggests an important strategic opportunity within the economic recovery process to focus on ‘building back better’ rather than simply rebuilding what had previously existed, or ‘picking winners’.

Recognising that these long-term, widely dispersed economic impacts and consequences can often be the most severe has important implications for the case for economic and business recovery support. At one level, it confirms the Productivity Commission’s view that there is limited value in simply providing one-off recovery grants to businesses in response to infrastructure and property loss, as these are often not the major cause of ongoing economic loss. However, it counters its view about the weakness of the underlying business case for government provision of economic recovery support. Interventions that respond to these impacts are not generally provided by market mechanisms or by immediate relief efforts, yet they can be vital in aiding genuine, long-term economic recovery.


32 Australian Institute for Disaster Resilience, 2018. Community Recovery Handbook 2. [Online] Available at: [Accessed 05 May 2020].

33 Wemple, Chuck, 2011. ‘Challenges of Economic Recovery Following Natural Disasters – Insights Gleaned from Hurricane Ike’, PERI Symposium: Community Recovery from Disaster, Public Entity Risk Institute, March 2011.

34 Professional Fishermen’s Association, sub. 62, p. 1 quoted in Productivity Commission, 2014. Natural Disaster Funding Arrangements, Inquiry Report no. 74, Canberra. [Online] Available at: [Accessed 05 May 2020].

35 Emergency Management Australia, 2002. Economic and Financial Aspects of Disaster Recovery. [Online]
Available at: [Accessed 05 May 2020].

36 Regional Australia Institute, 2013. From Disaster to Renewal: The Centrality of Business Recovery to Community Resilience. [Online] Available at: [Accessed 05 May 2020].