Amazon will soon choose a new location for building its 2nd headquarters. Chicago may be chosen. The winning city will receive an influx of high paying jobs and this will boost housing prices, human capital, restaurant demand and tax revenues. Cities are competing by offering tax breaks. Will Winner's Curse arise as cities over-pay?
Now let me turn to climate change adaptation. Critics of my free market adaptation work sometimes argue that a large percentage of the population have the wrong beliefs such that these climate deniers under-estimate the risks that a geographic area such as Miami will face in the future. I do not deny that there are climate deniers. In recent work, I have studied how their existence affects induced innovation.
But, these critics ignore general equilibrium effects. I believe that both major employers such as Amazon and the insurance industry are the "adults in the room". Amazon will not open a new durable and expensive headquarters in a location that climate change will destroy. Such firms will be more likely to choose a location with good fundamentals and where the urban leaders are upgrading the infrastructure to protect it from future threats. A mayor who is a climate denier but seeks to attract major employers will cater to such employers because the mayor needs a major employment center. People follow jobs! So, even in an economy featuring "deniers" and political leaders who are "deniers", a mayor who wants to attract new high paying jobs to her city has an incentive to invest in risk mitigation. This topic has not been explored by professional economists.
For more on my ideas about the future of insurance in protecting us from climate change, read my recent HBR piece.