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Investigating Power Laws in Hurricane Damages

Calvin Blackwell

posted on 02 January 2013

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Recent research indicates that the energy generated by hurricanes follows a power law distribution. We hypothesize that economic damages caused by hurricanes also follow a power law distribution. Using yearly hurricane damage data from 1900-2005 we show that the distribution of yearly damages due to hurricanes in the US may follow either a power law or lognormal distribution. Furthermore, if the distribution of damages follows a power law, then for the best-fit distribution, the tail of the distribution is so ‘fat’ that the variance of damages, conditional on being in the tail, is potentially unbounded.