Hurricane Fatalities and Hurricane Damages: Are Safer Hurricanes More Damaging?

The rising cost of hurricanes and other natural hazards has been a concern to policy makers and insurance industry executives. We offer a heretofore overlooked explanation for rising hurricane damages--the reduction in fatalities from hurricanes. Improved hurricane forecasts, more extensive evacuations, and other improvements make hurricanes less lethal, reducing the full cost of living on hurricane-prone coasts, and should paradoxically increase damages. We confirm this prediction by analyzing land-falling hurricanes in the mainland United States between 1940 and 1999. We first estimate a time-varying measure of hurricane lethality and then show that this measure significantly affects damages in hurricane-prone coastal areas.