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To browse Academia. Skip to main content. Log In Sign Up. Download Free PDF. Markets, distribution, and exchange after societal cataclysm Stuart Henry. Steve Rayner. A short summary of this paper. Markets, distribution, and exchange after societal cataclysm. Approval does not signify that the contents necessarily reflect the views and policies of the Federal Emergency Management Agency.

Four survival scenarios are postulated based on high or low levels of damage to 1 institutions that signal trading opportunities, reduce trans- action costs, and regulate and enforce contracts, and 2 resources that are used to create and define wealth. The four scenarios are best case, worst 7- case, - resource abundance, and an inptitution intensive case. From this corpus a set of non-market and market exchange structures are derived and rendered as rules vectors describing their operation.

Each of the four survival scenarios is expounded as a subset of the possible exchange structures that is logically compatible with the constraints defininia that scenario. NOver First, property rights in surviving resources are likely to be problematic in all but the best case and may place severe pressures on dispute resolution mechanisms and cival order.

Second, barter is not always less efficient than money, as is usually assumed. It may overcome trading difficulties where prices take time to adjust to changing supply and demand information. Attempts to restore currency where national institu- tions have been destroyed, will depend upon the credibility of the institution that emerges to underwrite it.

Third, prestige exchange is inextricably linked to conspicuous consumption and, sometimes, the extravagant destruction of property. Nevertheless, it may be a necessary precursor to the establishment of trust between traders as well as the restoration of currency and credit. Fourth, planning for the recovery of markets for particular goods should recognize that there will be major shifts in supply and demand.

The value of godds and services may undergo tremendous changes that are difficult to detect from price information, even where it is available. Also, the uses to which goods and services are put systematically lose their attractiveness because of socially generated changes in demand. Fifth, a critical problem will be the maintenance of trust and authority.

The more drastic the change from pre-attack society, the more difficulty people have in deciding whom to trust, who has the skills that they advertise, and who will behave with fiduciary responsibility. Accesion For.

These activities place the agency in the role of a risk manager and, in some cases, make it responsible for planning where too little is known about the likelihood or consequences of the risk. One area where risk analysis and management are particularly difficult is preparing for a societal cataclysm, for example, on the scale of nuclear war. Among the research areas related to this risk are issues pertaining to the restoration of the mechanisms for exchange and distribution of goods and services in the wake of societal cataclysm.

Investigations of this type present two major challenges to the analyst. First, the range of uncertainties involved implies that the number of possible scenarios to be examined must be capable of providing sufficient insight to be useful for planning purposes, while reasonably limited in number to be feasibly researched. Second, the unique nature of this problem implies that the theoretical and empirical evidence must be extracted from a number of disciplines, including anthropology, economics, and sociology.

Thus, the investigation requires the construction of a novel approach merging very diverse bodies of existing research. This study of post nuclear-war markets arose from previous FEMA sponsored research at Oak Ridge National Laboratory Hill addressing questions of post-disaster economic recovery and what would be the best way to distribute goods and services following a nuclear cataclysm.

The body of economics literature reviewed by Hill indicated that market mechanisms would be the most rational solution to this question, but did not address the question of what constraints the conditions of survival would place on post nuclear-war markets.

A major recommendation of Hill's study was that further analysis was needed to understand how institutional damage would affect market activity. Hence, our research question concerns the socioeconomic conditions that would have to pertain for rational mechanisms of distribution and exchange to function in the wake of a major societal disaster.

Specifically, what kinds of markets would be viable following the destruction or severe impairment of existing institutions, which regulate and enforue contracts, and resources, which define wealth? By institutions we mean social agencies and rules whose functions facilitate demand and supply transactions. Institutions therefore include currency, stock and commodity exchanges, courts, legislatures, and regulatory agencies. One strategy here would be to extrapolate from existing experience on the effects of natural disasters on markets.

Even where these mechanisms are impaired or destroyed locally there will be, in the United States at least, a higher authority with external resources to step in and restore order Mileti et al ; Haas et al. Past experience with natural disasters suggests that there is not the opportunity to establish new institutions governing patterns of distribution and exchange, the enforcement of contracts, and maintenance of property rights.

In the case of a major societal catastrophe, the survival of a broad economic and legal infrastructure governing markets cannot be assumed, even where there are surplus goods and services and willingness to participate in exchanges.

Hence, novel adaptations of familiar market arrangements may arise, according to local circumstances, in order to maintain trust between economic agents or to substitute confidence in an institution that will enforce contracts where that trust is missing. This report represents a comparative evaluation of how market exchanges and property rights are likely to be maintained under alternative institutional arrangements that may arise.

Although the results of natural-disaster research are of very limited help to this research, it was considered prudent to examine the guidelines offered by disaster-planning research in constructing a research design for modeling post-attack markets.

In one very important aspect the two problems are identical in that, "the ultimate goal in such planning is to enable an effective and efficient start towards the restoration of normal routines" Dynes et al. The problem is similar to natural disasters in that FEMA has very limited influence on the occurrence of the disaster event. To some extent, FEMA is constrained to accept the position that planning is necessary to reduce the uncertainty of the event following sorietal catastrophe, rather than preventing the catastrophe from happening.

The parallel problems suggest that planning for societal disaster may bene. However, a closer examination of major specific guidelines reveals that some guidelines are very applicable while others are inappropriate and, if applied, could be misleading for societal-disaster planners.

Below, we consider four of the important disaster planning guidelines from the literature on natural disasters. Emphasize the appropriate over the fast response. This guideline is particularly important for the market problem since other response concerns are likely to dominate in the period immediately following the disaster. In fact, the restoration of market activities generally does not reflect the crisis characteristics of wl.

Plan for most likely probability. This guideline is appropriate in the natural-disaster context, where data exist from which probability information can be drawn. The lack of actual data even remotely applicable to our disaster event implies that we would have great difficulty in specifying most likely cases. Thus, considering a limited number of extreme cases is more suited to societal disaster planning. This follows from the need to keep the planning process tractable, while recognizing that the unusual may occur.

Lack of direct experience from which to define likely scenarios is one of the more difficult problems of planning for societal cataclysm. Focus on principles. Given that uncertainty is prevalent in the analysis, we believe that this guideline is crucial to the planning research design.

We structured our analysis to emphasize the rules by which social interactions and exchange are governed. By doing so, we were able to specify market structures as packages of rules governing demand, supply, and transactions. This specification allows direct comparison among the different types of market structures. More importantly, it facilitates the identification of social or technical conditions that give rise to particular rules and suggests principles to follow which account for these conditions.

Only exercised plans are realistic. Although sensible in concept, this guideline is not very practical for the global disaster problem.

However, we agree that some application of the potential policy is desirable. For the market problem, this implies some application of the policies that are recommended to facilitate market exchange under various assumptions regarding the surviving infrastructure and resources.

Alas this was not possible in the terms of the present study, however, one possibility for future research would be to use experimental economic methods Plott , Smith to construct defined market structures under which participants may exchange.

An additional set of guidelines emerged as a result of our research of the market problem that we believe can be useful to similar planning questions. These guidelines are more concerned with disaster-planning research design, an area not well explored in the natural-disaster planning area.

This is not an oversight of the natural-disaster literature, since such research is strongly based in actual disaster- response experiences. Without the benefit of actual data, the societal disaster planner must rely on a well-developed research design to suggest the possible circumstances that will necessitate a response. Furthermore, the research design must be capable of suggesting the efficacy of possible disaster responses, again without the benefit of real-world applications.

Limit the possibilities in a meaningful way. This guideline encourages the development of a defensible framework for determining the logical possibilities. Furthermore, given the number of scenarios that may be generated from incremental changes in the important variables, some reasoning also is necessary to constrain the analysis. In our study, we specified the range of initial scenarios within which institutional adaptations could arise in the wake of large-scale material and institutional devastation.

Any such catastrophe may be presumed to affect existing markets in two important ways: 1 destruction of resources skills, goods, and currency to exchange , and 2 destruction of institutions.

Depending on the extent of the catastrophe and the location of the affected market, either or both of these factors may sustain light or heavy damage. The possible combinations of these factors generate four distinct scenarios, described in chapter one, and determine the initial conditions for the development of possible post-disaster market arrangements.

Guidelines should combine models and disciplines. Societal- disaster planning problems will necessarily involve questions addressed by different literatures and conceptual models. In order to specify the necessary conditions for markets to operate under each of the above scenarios, this report reviews the theoretical foundations of the concept of exchange in economics, sociology, and economic anthropology.

Existing studies of unconventional and traditional markets are examined to see how exchanges actually occur in conditions other than the ideal situations postulated by theoretical models. The resulting framework is then applied to the four scenarios in order to generate the necessary conditions for market activity in each case and to explore policy- relevant factors.

Thus, some guidelines must be followed in the research design to combine this diverse information. Three aspects of combining diverse literatures were particularly important for our research design problem.

First, it was important to recognize inconsistencies across and between levels of analysis. To study the rules governing exchange within each scenario, we referred to models of exchange from anthropology, economics, and sociology. Unfortunately, these models are rarely consisteut with each other, especially with respect to the level of analysis.

Thus, models of collective, individual, social-network, firm, and industry behavior were reviewed. One of the more difficult problems was determining which level of abstraction in these models was appropriate to provide useful information to the analysis without losing a realistic perspective.

For example, we resisted the reductionism of formal economic models that rely on the extreme version of utility theory.

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