Power Law or Lognormal? Distribution of Normalized Hurricane Damages in the United States, 1900–2005

Abstract

Recent research indicates that the energy generated by hurricanes follows a power law distribution. The authors hypothesize that economic damages caused by hurricanes also follow a power law distribution. Using yearly hurricane damage data from 1900 to 2005 the authors show that the distribution of yearly damages due to hurricanes in the United States 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.