Prices and supply disruptions during natural disasters

Available from: 
October 2013
Paper author(s): 
Eduardo A. Cavallo, Inter-American Development Bank
Alberto Cavallo, MIT and Roberto Rigobon, MIT
Environmental Economics
Macroeconomics - Economic growth - Monetary Policy

We study the daily behavior of supermarket prices and product availability following two recent natural disasters: the 2010 earthquake in Chile and the 2011 earthquake in Japan. In both cases the margin of adjustment was mostly in product availability. The number of goods available for sale fell 32% in Chile and 17% in Japan from the day of the disaster to its lowest point, which occurred 61 and 18 days after the earthquakes, respectively. By contrast, prices remained stable for several months. This behavior was present at various levels of aggregation. At the goods-level, we show that the out-of-stock hazard rate, which measures the daily probability of a good disappearing from the store conditional on the days since the disaster, is highest in the first week and then falls gradually over time. The price-change hazard remains stable for three months and then increases gradually over time. These findings are consistent with pricing models where retailers have fear of "customer anger". Similar real-time metrics using online data can potentially be used by governments and international organizations as signals to coordinate aid or target policies that help affected populations, and also serve as early indicators of broader official statistics such as CPI and industrial production.


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Research section: 
Lacea 2013 annual meeting
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