Sunday, June 10, 2012

Modern disaster theory revisited

Northridge earthquake, 1994I am attending the 2012 midyear meeting of the Association of American Law Schools. The topic is torts, environment, and disaster. I will present Modern Disaster Theory: Evaluating Disaster Law as a Portfolio of Legal Rules, 25 Emory Int’l L. Rev. 1121 (2011), which is available for download at or

Disaster law consists of a portfolio of legal rules for dealing with catastrophic risks. This essay takes preliminary steps toward modeling that metaphor in quantitative terms made familiar through modern portfolio theory. Modern disaster theory, by analogy to the foundational model of corporate finance, treats disaster law as the best portfolio of legal rules. Optimal legal preparedness for disaster consists of identifying, adopting, and maintaining that portfolio of rules at the frontier of efficient governance.

I begin by defining disaster and disaster law. In an effort to develop an analytically rigorous basis for modeling and evaluating disaster law, I expound the principles of modern portfolio theory, a framework for assessing financial returns according to risk. I outline the principles of modern disaster theory as the legal analogue of modern portfolio theory as a branch of finance. I then conduct an exercise in applied modern disaster theory. I evaluate legal tools for compensating disaster victims ex post and spreading catastrophic risk ex ante according to the terms of modern disaster theory’s catastrophic preparedness asset model. I conclude that modern disaster theory, through the use of sophisticated quantitative methods analogous to those used in financial analysis, promises to place disaster law and policy at the efficient frontier of legal preparedness.

A condensed version of this paper is available at The PowerPoint presentation derived from this paper is available at Modern Disaster Theory has been featured on Jurisdynamics.

Editor's note: The picture depicts the 1994 Northridge, California, earthquake. That event represented a pivotal moment in the development of catastrophe bonds as a means of alternative risk transfer. This post also appears on my personal webpage,


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