Monday, February 04, 2013

Andrew Cuomo's Effort to Shift the Incidence of Climate Change Adaptation

Andrew Cuomo is a smart man.  He seeks for people like me (residents of California) to subsidize his coastal voters!  To adapt to climate change, we will need to retreat from coastal areas where people now have homes.  But, a fundamental property rights issue arises.  What compensation should they be paid to move?  An economist would say; "the current market price".  But, Gov. Cuomo views this price in Hurricane Sandy ravaged areas to be too low so he wants to pay the incumbents the "pre-Storm" value of the homes and he wants Federal $ to pay for the transfer!  Smart, Smart, Smart!  May I ask a question?  If the coastal homes on the Atlantic had gone up in value would Gov. Cuomo have agreed to tax these homes more?  Do you see the asymmetry?    Who bears the incidence of "new news"?  I say that the asset owner does. As I discuss in Climatopolis, we can't allow one sided coins to be flipped. This leads to bad incentives and funky transfer.

UPDATE:  I recognize that there is a positive adaptation externality achieved by creating a natural capital coastal buffer zone.  Gov. Cuomo's effort will create this but the question is whether he is "over-paying" for purchasing the land because he is using other people's money (i.e. Federal $).  The irony here is that those who took the risk (the coastal home owners) are being offered the chance for a "do-over" and won't face any asset downside risk for taking their gamble of betting their lifetime savings on a coastal home as climate change unfolds.

For those who prefer video, here is my Lecture #37 that focuses solely on this weighty subject!