disasters. In this regard, it is worth noting that, concerns regarding benefit-cost aside, many countries do have building codes on the books that set standards for earthquakeresistant construction – and yet buildings routinely collapse in earthquakes. This suggests an important additional element to the story regarding the political economy of the implementation of regulation.

# **The Political Economy of Regulation**

That consumers are ill-equipped to verify the quality of construction may account for the pressure for government regulation. The information asymmetry could be overcome by private agencies – on the model of credit rating agencies, for example. In public buildings in particular such a model would be likely unworkable as a tool to improve safety. Imagine an office worker relocated to an office with a higher ‘earthquake risk rating’ because of lower quality construction. Would it be plausible for them to quit? Or imagine shoppers entering a store pausing to check the earthquake risk rating register to evaluate the chance they would die while in the shop. For private houses, the risk rating model might be more plausible – indeed, publicly provided information on location-based earthquake risk is part of the approach used in Tokyo and California, as we have seen. That there is limited consumer response in these cases may be one reason why public safety advocates (and risk-averse consumers worried they won’t get a return from their safety investments) push for regulation. In addition, insurance and construction firms in strong governance environments may both benefit from such regulation. Insurers can be guaranteed a certain quality of construction in the buildings they insure without the cost of assessment. Contractors firms gain additional business from retrofit and earthquakeproof construction.<sup>29</sup> The incentives for insurers and contractors to push for such regulation are lower in weaker-governance economies. Owners can avoid regulation because of weak enforcement or bribery. So insurers can’t be confident that buildings will be constructed according to code. And contractors may lose out to informal construction techniques or less scrupulous firms if they insist on building to code. But for a corrupt senior official in charge of construction, passage and non-enforcement of codes may be an optimal approach to the regulation of construction. Overseeing an enforcement regime allows for the collection of payments from construction firms that flout the codes. The complexity of construction will mean that shoddy construction is unlikely to be detected in the short term. Buildings may subsequently fail but this is likely to be some time in the future when the official has moved on to another position. Regardless, the official can blame limited capacity or construction firm obfuscation and is unlikely to face significant risk of penalty.

These factors may explain why poorer countries are less likely to have regulations which comply with international earthquake design codes and standards, and less likely to enforce them if they are on the books (Anbarci, Escaleras and Register, 2005). A review of natural hazard-related building codes in developing countries found that the existence

> 29 Thanks to Phil Keefer for this observation.

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