Monday, July 27, 2015

Reducing the Urban Damage Caused by Floods

Climate scientists continue to warn us that flood risk in coastal areas is increasing because of sea level rise. How do we adapt to this anticipated but vague threat?  The threat is vague because we don't know when and how severe and where will any specific flood occur. We are able to form some general predictions about times of the year when it rains hard. We know which areas are close to the sea.  What can property owners in these places do to defend their turf and reduce damage?    What can local governments do to defend the turf?  How can we design incentives to reduce the probability of government effort crowding out private household self protection?

First some specifics:  (Source) is Terry Sheridan

Safeguard in-home electrical and climate systems

Raise switches, sockets, circuit breakers and wiring at least a foot above the expected flood level in your area, the IBHS website advises.
Modify your furnace, water heater and any other anchored indoor equipment so that it sits above your property's flood level.

Anchor and raise outdoor equipment

Fuel tanks, air-conditioning units and generators should be anchored and raised above your flood level.
Unanchored fuel tanks can break free, and severed supply lines will contaminate surrounding ground, the IBHS warns.
Jose Mitrani, engineer and professor at the OHL School of Construction at Florida International University in Miami, cautions that electrical power units and generators should never sit on the ground.
"These backup facilities will be inundated (by water) and useless," he warns.

Modify water valves

A flooded sewer system can cause sewage to back up into your home. So that you won't find yourself knee-deep in you-know-what, install an interior or exterior backflow valve, IBHS advises.
The Federal Alliance for Safe Homes, or FLASH, recommends gate valves. They are more complex, and you operate them by hand. But they provide stronger seals than flap or check valves, which open automatically to allow water to flow out and then close when water tries to get in.
Valves should be installed on all pipes entering the house, FLASH advises.

Determine how water flows around your house

Called the grading or slope, the angle of the ground can direct water to or from your house. Obviously, it's best if the home was built so that water drains away from the building.
This is easy enough to determine by watching how water flows or accumulates during an average rainstorm, says FLASH President Leslie Chapman-Henderson.
If your street is prone to standing water even after a fairly ordinary rainstorm, talk to your county planning or environmental services department, advises Chapman-Henderson. "A major part of their job is water flow, and they can make suggestions."

Opt for a major retrofit

If your home floods frequently and moving isn't an option, you may need to take drastic and costly measures.
FLASH's home safety program suggests three options:
  • Raise your home on piers or columns so that the lowest floor is above the flood level. If that sounds expensive -- well, it would be. Experts tell FLASH that such an undertaking would cost $20,000 and up, Chapman-Henderson says.
  • "Wet-proof" your home by installing foundation vents that would allow water to flow through the building, instead of rising inside and causing more damage. You'd need at least two vents on different walls. A 1,000-square-foot house would require 7 square feet of flood vents, according to FLASH.
  • Do some "dry proofing" by applying coatings and other sealing materials to your walls to keep out floods.

Take last-minute measures as waters rise

  • Clear gutters, drains and downspouts.
  • Move furniture, rugs, electronics and other belongings to upper floors, or at least raise them off a ground floor.
  • Shut off electricity at the breaker panel.
  • Elevate major appliances onto concrete blocks if they're potentially in harm's way from flooding.

Read more: 

What does FEMA say?  Read this.

In this age of field experiments, we need to know how cost effective are each of these strategies? If you adopt 3 of the 6, how much does this reduce your damage caused by a flood? This is a test of the optimistic adaptation hypothesis.

Poorer households and "behavioral" households will be less likely to take these precautions.

Note that if coastal households believe that FEMA will bail them out if a disaster occurs, then households will be less likely to invest in these costly self protection measures.  This anticipated moral hazard effect induced by FEMA must be discussed and dealt with.

As I talk about in my 2010 Climatopolis book, I would like to see the insurance industry be allowed to engage in much more spatial price discrimination so that they can charge higher home premiums in riskier areas and created a nuanced contract that offers a cheaper premium if home owners invest in more flood precautions that can be cross-checked by the insurers.   These small ball choices represent how an urban economy becomes more resilient in the face of flood shocks.

To enhance adaptation, we need continuing spatial refined models of the geography of flood risk.  Which areas within a city are at the greatest risk?   Should housing in such areas be required to meet more stringent regulatory standards?   Should people who insist on living in such areas sign a form acknowledging that they will not receive a FEMA bailout if a disaster does occur?  Would such a social contract be "time consistent" or would the government renege on its original promise to the tax payers?

Sunday, July 26, 2015

The REPEC Fantasy League and My Initial Endowment of Economists

When I was a kid, I played Stratomatic baseball. This was a precursor to Billy Beane's Moneyball.  Now that I'm no longer a kid, I have signed up for REPEC's fantasy League and below I report my initial roster (that I was assigned at random).  I find it mildly amusing that I was randomly assigned Tomas Piketty.  I will trade him.  For those who enjoy rankings, keep an eye on my team. We are called "Diesel".  (Don't ask).

From my set of economists,  I know that I want to keep Alesina, Allen, Diebold, Jovanovic, Kolstad and Zucker (my UCLA colleague).   I am in deep thought about what other trades I should make.  I just tried to acquire myself and my wife.  We would be good teammates but I found that neither of us has been assigned to "play" for any team yet.

MyIDEAS Logged in

Matthew Edwin Kahn's IDEAS fantasy league portal

Your current roster. Click on buttons to modify your roster. You currently have 100 utils
activeAlberto Alesina
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activeFranklin Allen
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activeRabah Amir
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activeMarianne Baxter
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activeLaurence Ball
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activeDavid Canning
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activeAli Choudhary
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activeThomas F. Cosimano
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activeStefan Dercon
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Bert D'Espallier
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activeFrancis X. Diebold
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activeRobert Andrew Evans
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activeLiutang Gong
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activeBoyan Jovanovic
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activeCharles D. Kolstad
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activeJános Kornai
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Gianluca Mattarocci
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Leila Maron
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activeJames McIntosh
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activeMakoto Nakajima
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activeThomas Piketty
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Kyosti Sakari Pietola
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activeKenneth Spong
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Chenyang Wei
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activeLynne G. Zucker
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You have currently have 20 active economists, you need to first deactivate one to be able to activate another. Drop means to lose the economist without compensation. Economists stay on the market for a month in a sec

Optimism About Our Rising Standard of Living

Arthur Brooks' OP-ED focuses on the politics of optimism but I would prefer to recast his focus on what should be the basis of our optimism about our collective future.  In 2015, we live in a world with roughly 7.3 billion people whose life expectancy is higher than it has every been.  Educational attainment is higher than it has ever been. Urbanization both insulates us from climate shocks and facilitates trade and learning. Anticipating a longer life time and lower infant mortality, families are having fewer children and investing more in the human capital of each child. These children (through the dynamic complementarity mechanism of learning begets learning) are more likely than previous cohorts to achieve their full potential.  While many progressives yearn for a return to 1950s America, I have argued (see this post and this post) that those days were not as great as they recall and the rest of the world was not in terrific shape then (think of China).

My optimism about our future is based on information technology keeping us aware and up to date in real time about emerging risks.  An educated world population demanding solutions to pressing challenges (ranging from climate change to cancer) and an ambitious set of entrepreneurs who seek both to become rich and to improve the world (think of Zuckerberg).  Ideas are public goods.  In a world of 7.3 billion people, what is the chance that the best idea from this large set is bad? The answer is zero.

Free markets, global connection, international markets in human capital and financial capital guarantee that the pace of progress will only accelerate.  Do the poor benefit from this emergent trend? Yes.  But, we all have to find and hone our comparative advantage within the world economy's price signals.

Saturday, July 25, 2015

Are China's Mayors Good at "Picking Winners"? An Evaluation of Managed Industrial Policy

Jianfeng Wu, Siqi Zheng, Weizeng Sun and I have just released a new NBER paper titled "The Birth of Edge Cities in China: Measuring the Spillover Effects of Industrial Parks".

Several Chinese cities have invested billions of dollars to construct new industrial parks. These place based investments solve the land assembly problem which allows many productive firms to co-locate close to each other. The resulting local economic growth creates new opportunities for real estate developers and retailers that develop properties and stores close to the new park. The city mayor has the political clout and the personal promotion incentives to anticipate these effects as he chooses whether and where within the city to build the park. Using several geo-coded data sets, we measure the localized spillover effects of the new parks on local incumbent firm productivity, the growth of retail activity close to the park and local real estate pricing and construction. We document the heterogeneous effects of investment in parks. Those parks featuring a higher level of human capital, a greater level of co-agglomeration among firms within the park, and a smaller share of State Owned Enterprises offer greater spillover effects.
Our paper makes a contribution at the intersection of productivity studies, development, environmental, urban and real estate economics.
Industrial parks are huge pieces of land often located in the suburbs of major cities.  Mayors create such "field of dreams" with the intent of creating a productive new city sub-center far from the city center.  The successful creation of such a city sub-center would spatially diversify the metropolitan area and reroute work and leisure trips away from the congested city center.  We document the cases when industrial parks have the largest spillover effects.  Our basic story is rooted in simple intuition;
Consider the following "chain reaction";
1.  A park recruits successful private sector firms to locate in the park. These firms are attracted by the prospects of locating close to other productive firms (this is classic urban agglomeration) and the parks solve a land assembly problem and a co-ordination problem across firms.
2. An emergent property of a park that attracts productive firms is a high level of overall productivity. This raises employment and wages for those in the park and there are spatial spillover effects such that incumbent firms located close to the park also enjoy an increased productivity effect. 
3. Based on #2;  total income and employment in a vicinity of the suburban park increases and this market potential creates a demand for new housing and new retail opportunities. This local market potential stimulates a housing boom and a retail boom for park workers who seek a short commute to work. 
4. The net effect is a vibrant new city sub-center far from the city center.    
Of course, this "deterministic" process is not guaranteed to unfold ex-ante --- our paper has some smart ideas concerning when this optimistic set of events plays out.
Our paper is subtle about discussing the unique powers that Chinese mayors have that their U.S counter-parts do not have.  I am not endorsing Chinese institutions as "better" than U.S institutions. Instead, I am interested in the urban growth implications of these powers.