We study how the local institutional context shapes local government decisions aboutresponses to perceived threats of natural disasters and climatic change. We draw on institutionaltheories and field observations to develop hypotheses about the effects of municipal institutionalarrangements, social capital, and multilevel governance. To test these ideas, we analyze a uniquedataset with over-time observations for almost all local governments in Chile. Our analysis showsmultiple institutional conditions supporting proactive local adaptation: municipalities with relativelyrobust institutional settings tend to devote more resources to environmental risk management andadaptation. We use our quantitative model to show that altering institutional settings can make adifference for increasing local government investments in this area. Although few local governmentsin Chile currently enjoy favorable institutional conditions for risk reduction and adaptation, ourfindings identify ways through which external actors may contribute to a more propitious institu-tional climate.