The NY Times reports that the people of Cedar Rapids Iowa have not learned their lesson from the last big flood of 2008.
“The city has bought and demolished about 1,400 homes since the flood. But the city and private developers are spending more than a combined $200 million to build 1,311 new housing units. City officials have spent $307 million in federal, state and local money to redevelop flood-affected public facilities. In the last fiscal year, the city spent more than $150 million on capital projects related to the flood and it has allotted another $136 million for such projects in the current budget.”
Do you smell moral hazard? Â Do you smell “too big to fail”? Â Â Here is an excellent research paper that explores this broad issue. Â These scholars argue that the Federal government will invest in playing defense against Mother Nature in areas where it believes people will move to but people want to move to areas where the Federal Government will invest in paying for defense. So, this is a multiple equilibrium game! Â If the federal government could commit to not pay for defense, then people will be less likely to live in a risky place.
In my own research, I have documented using cross-country data that fewer people die when natural disasters strike richer nations but such nations often introduce perverse spatial subsidies that encourage people to live in risky place. Â In Climatopolis, I argue that this encumbers adaptation.