Crowding Out in New Orleans? The Effect of Relief Agencies on Investment

There are varying viewpoints on the level to which relief agencies should be involved in the rebuilding efforts of areas which have been affected by a natural disaster. Above-average wages paid by relief agencies in the wake of Hurricane Katrina in the New Orleans metro area have highlighted the potential for government to crowd out local businesses—via employment in the short-term and investment in the long-term. This study analyzes the effect of wage increases on investment in New Orleans pre-Katrina, the extent of overall wage increases following the storm, and their estimated effects on employment and investment. Using the REMI model, relief withdrawal strategies are also explored.