Here are many comments associated with Justin Gilles’ piece in today’s NY Times. Let’s think like economists. Suppose you are a renter of a coastal house. If sea level rise poses serious flood risk, you have an easy option to not renew your lease and to move to higher ground. Migration isn’t costless. You must pay the fixed cost of moving your stuff and you leave your local friends and knowledge about the area. You might have been well matched with the area such that you love your morning walk near the beach. An economist would ask the following question; ”if you have to move from your coastal rental, what is your next best affordable place to live and how close a substitute is it to your current place that due to climate change is at increased flood risk?” A basic idea of economics is that prices adjust so that your next best housing option is a close substitute for your current rental. Doom and gloomers implicitly assume that we have no options. Read Sherwin Rosen’s 2002 AEA Presidential Address.
What about home owners in coastal areas now at increased flood risk? An economist would say; ”You made a bet by investing your savings in a risky asset. If the value of your house had tripled would you have paid extra taxes because you don’t “deserve” this good news?” Why if bad news occurs, do you deserve a payoff from other taxpayers who didn’t make the risk bet? You had the option to buy insurance where you located, why didn’t you buy more? Why do you have the property right to live in a risky place that is growing more risky over time? If the person says; ”I was born here and I want to die here. All of my roots are here”. An economist might reply; “you have the right to live your life as you see fit but do your kids know the gamble you have taken? Are you aware of the risk you are taking by remaining here? Social workers could educate local community members about the risk. If they continue to want to live there, then what do benevolent paternalists do at that stage? Local government can step in and use eminent domain to buy their houses to force them to move to “higher ground”? At what price should government pay? The market price that reflects the lower demand for living in a newly risky area? Or will politicians seek to pay too high of price using federally subsidized tax dollars to over-compensate land owners in at risk areas.
If coastal home owners want to remain in their increasingly at risk areas and if they want federal subsidies for building sea walls, should the rest of the U.S oppose this? As I argue in Climatopolis back in 2010, the answer is “yes”. Such subsidies represent a new example of moral hazard and risk taking related to sea level rise should not be subsidized. If home owners want to live a risky life, they can use their own funds to do so. The funny thing here is that people would be more likely to move away from the new hazard and thus adapt to climate change if the federal government was less generous in rebuilding coastal areas. Everyone is about to get another lesson in “crowding out”. Similar to Peltzman’s famous safety example, investment by government in protecting the public actually reduces the coastal home owners’ incentives to invest in private self protection.
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