The Economic Costs of Hurricanes and Endogenous Responses
Hurricanes inflict substantial economic damage, yet accurately estimating their causal impacts remains challenging because of endogenous responses. This study investigates the economic consequences of hurricanes on U.S. counties, focusing on two understudied sources of endogenous response: forecast information and prior hurricane exposure. Using U.S. county-level data from 2005 to 2022, the results show that hurricanes significantly reduce GDP, GDP growth rate, and per capita income while increasing the unemployment rate, with effects extending beyond coastal regions. Combining a theoretical model of household evacuation decision with multiple empirical approaches, this paper highlights two main findings. First, forecastable components of hurricane intensity help correct biases in estimated impacts: while forecasts amplify observed economic losses, they substantially reduce mortality, suggesting that counties balance short-term economic costs against social benefits. Second, although prior hurricane exposure has persistent negative effects for up to two years, past property damage reduces the stock of vulnerable assets, thereby mitigating the marginal negative impact of subsequent hurricanes on economic outcomes.