The Impact of Government Disaster Surveillance and Alerts on Local Economic and Financial Conditions

This paper examines how government alerts about a potential dam rupture affect Brazilian municipalities' local economic and financial conditions. The dam collapses in Mariana (2015) and Brumadinho (2019) revealed the extent of losses that environmental disasters can cause in terms of human lives, flora, and fauna. This paper investigates the effects of government alerts regarding dams' structural vulnerability on nearby municipalities. We focus on municipalities with dams classified as structurally vulnerable but ended up not collapsing. This approach disentangles the actual economic effects of the dam rupture from the information value of the government alert. These notifications have a detrimental impact on municipalities' local economic and financial conditions: local consumption declines, labor markets concentrate on less industrialized sectors, and financial development decreases. We also find that the government alerts diffuse to neighboring municipalities with a magnitude inversely proportional to the neighboring municipality's distance to the notified dam. Our findings highlight the importance of incorporating negative externalities associated with potential environmental disasters into mining companies' costs as a way to mitigate disasters.

Automated summary

This paper examines the impact of government alerts about potential dam ruptures on the local economic and financial conditions of Brazilian municipalities. The study finds that these alerts have a detrimental effect on municipalities, leading to a decline in local consumption, a concentration of labor markets in less industrialized sectors, and a decrease in financial development. The alerts also diffuse to neighboring municipalities with a magnitude inversely proportional to the distance to the notified dam.