To rebuild a damaged area requires large capital investments. Who finances these investments and what interest rate do they expect to be paid for lending their capital? What role do the ratings agencies such as S&P and Moody's play here? After Sandy, if Standard and Poors gives a coastal New Jersey town a bond rating of C, how large an interest rate premium will such a city have to pay to rebuild? Is that fair? Gretchen Morgenson's piece is worth reading. Should the national government guarantee the local bonds in order to allow the shocked cities to borrow at a lower interest rate or does that create moral hazard again?
Switching topics; look to the right of this blog entry --- you will see all 13 of my Youtube environmental economics lectures. As I add more, they will be included in the playlist to the right.