Hazard Mitigation Investment Decision Making: Organizational Response To Legislative Mandate

This paper proposes an organizational decision-making model that predicts the conditions under which organizations will spend significant money to reduce the likelihood of substantial damage from extreme events (e.g., earthquakes). The model is informed by relevant theoretical literature and by interviews with hospital executives representing public, not-for-profit, and investor-owned acute care hospital facilities in California. In developing the general predictive model, we use the specific case of how California hospitals have responded to the State legislation known as SB 1953. SB 1953 requires that acute care hospital buildings built before 1973 meet or exceed specified seismic safety standards by 2008 and higher standards by 2030, or be withdrawn from service as acute care facilities.

The model draws on five streams of organizational decision-making literature to predict the conditions under which organizations choose to make hazard mitigation investment decisions: transaction cost economic theory, institutional theory, regulatory theory, upper-echelons theory, and organizational strategy theory. Drawing first on transaction cost economic theory, we suggest that whether and how an organization decides to invest in hazard mitigation depends partly on whether the organization believes that such investments will yield a profitable return. Then, consistent with institutional theory, we argue that there are external and internal forces that influence how and whether organizations choose to mitigate against extreme events.

Using regulatory theory, we suggest that several characteristics of the regulatory relationship will influence hazard mitigation investment decision making, including the degree or intensity of the regulation, competence of the regulators, and collaboration in developing regulations. Next, we rely on both upper-echelons and organizational strategy theory to argue that the characteristics of an organization’s