Economist Matthew Kahn wonders how coastal areas might adapt to climate change without federal assistance.

Hurricane Sandy highlighted a number of problems that U.S. cities face in the era of climate change. Development has pushed up to the coastline in a way that strikes some as "foolish." Plans for sea walls and storm protections have been met with a lack of urgency. A push for urban resilience, in general, can't afford to wait any longer.

U.C.L.A. economist Matthew Kahn, author of Climatopolis, wonders if these failures have something to do with the comforting presence of federal disaster relief. While it's great that FEMA has helped so many people in New York and New Jersey, perhaps an unintended consequence of this support is that communities haven't adequately prepared for such disasters themselves — either by moving to higher ground, or by investing their own local money in sufficient flood barriers.

In other words, might the absence of federal bailouts actually improve the way cities adapt to rising sea levels?

"We've learned the hard way that the probability of terrible storms has increased, perhaps because of climate change, and that this should trigger investment in self-protection that reduces the impact of these storms," says Kahn. "But if you expect these bailouts, that chips away at investing in resilience. It's a disincentive."

Over at his blog, Environmental and Urban Economics, Kahn recently posted a "tough love" thought experiment: How would New Jersey rebuild the coastline if the state knew that FEMA aid wasn't available in the future? He predicts a combined response from both government and citizens alike. State and local leaders would change zoning laws to discourage risky coastal construction, and coastal residents would take precautions like moving inland to get out of harm's way.

He writes (with some punctuation edited for clarity):

During a time of tragedy, we seek to make the victims whole, but is an unintended consequence of such well-meaning aid to create a "moral hazard" effect such that the next natural disaster causes equal pain?

History suggests he might be onto something. In a study published earlier this year in the American Economic Review, Kahn and two other researchers looked at migration patterns in and around disaster areas in the 1920s and 1930s. They found that people moved away from frequent tornado areas, but toward frequent flood areas. One possible reason: Army engineers began to build an extensive public levee system areas after a major flood in 1927. Kahn and colleagues conclude:

More people will stay in or move to a risky area if they believe that sea walls will be built. … Such efforts could be disastrous if the public is overly optimistic about engineers' ability to protect the public.

Kahn recognizes that his "tough love" approach can seem like every-man-for-himself villainy. (A post-Sandy editorial in the New York Times, for instance, recently flayed FEMA detractors for suggesting that "people should pay for their bad decisions.") But Kahn argues — from a strictly economic viewpoint — that in the long run federal disaster relief is hurting communities by removing some motivation for precautionary measures.

"If there's this expectation that there will be this rebuilding, how much does this chip away at self-protective actions?" he says. "To an economist, it's clear that this effect exists. But to non-economists, the economists look like bad people for even suggesting it."

If Kahn's approach were implemented, that might mean a dramatic change in the built environment of major cities across the country. High-risk areas like Lower Manhattan would in theory become 21st-century ghost towns — or, at least, much less populated than they are at present. He doesn't see that as a problem, largely because he thinks the people who work on Wall Street would be just as productive working out of an office in, say, Westchester County.

"Climate change is going to shake up the rankings for cities, and some coastal cities that used to be very desirable might shrink in the rankings and suffer this exodus," he says. "These people will move somewhere else."

Kahn says he isn't entirely opposed to the idea of government stepping in after a major storm. In situations where federal relief could accelerate the post-disaster adjustment process and mitigate short-term suffering, there's definitely a role for an agency like FEMA — just as there was a role for the Marshall Plan after World War II. In general, though, he thinks the free market will guide people toward the best protective behavior in the climate change era.

"Of course there's a role for government, but we have to anticipate unintended consequences," he says. "We need a competition between urban governments to get a race to the top — to incentivize these mayors to make their own communities more climate resilient."

Top image: A man walks through piles of debris that have not been removed by the Department of Sanitation outside of homes damaged from flooding that inundated the area during hurricane Sandy in the Queens borough neighborhood of Belle Harbor. (Lucas Jackson/Reuters)

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