The cost of rebuilding on disaster-prone land

Aerial view of tornado damage in Alabama. An outbreak of 343 tornadoes in central and southern states caused 321 deaths in 2011. Credit: NOAA

Last year was one for the record books. In the U.S., a total of 14 weather and climate disasters each caused upwards of $1 billion in damages. The disasters killed 735 people.

A study as noted in this article examined man-made natural disaster losses between 1980 and 2011 and concluded that the losses in North America nearly quintupled in that period. The insured losses cost a spectacular $510 billion.

Time series of billion dollar-plus disasters in the U.S. Credit: NOAA/NCDC

What caused the extreme weather conditions? There is no direct answer and the connection between climate change and extreme weather is debated. What’s science without controversy anyway? The escalating cost of these disasters can be attributed to government policies that encourage development in high-risk areas.

In Climatopolis, Matthew Kahn, writes that the anticipation of government protection proceeding a disaster creates incentives for builders to take perilous risks. He talks about the “tough love” policy advocated by Milton Friedman. The policy encourages people to move away from at-risk areas, or at least use better, sustainable building materials.

“Milton Friedman would offer no government money to rebuild damaged cities, a move that would short-circuit the current system,” Kahn writes. “Without any guarantee of government bailout, developers would have to think long and hard and really understand the risks they face before committing to building in a flood plain.”

Economist Gary Becker explains the concept in the “Good Samaritan” paradox:

Think about the behavior of loving parents toward their children. The parents are always there to help if their children need financial help. At the same time, parents want to teach their children about how to spend money wisely and to work and study hard. If the parents’ threats aren’t backed up with actual behavior, the kids will expect help whenever they find themselves in trouble. Becker writes, “parents might then be indirectly encouraging the very behavior by their children that they want them to avoid.”

It isn’t the most efficient use of the public’s tax dollars or of safety to promote development in high-risk disaster areas. In short, free insurance leads to bad location decisions.

You should follow me on Twitter @shivan_sarna 



2 thoughts on “The cost of rebuilding on disaster-prone land

  1. Mike DeVito says:

    Excellent use of data, great link content – you’ve written an absolutely excellent news article here. And that’s not surprising – you are by a wide margin the best reporter in our group. This is a blog post, though, and I think that’s going to be your challenge here – blog posts are something different from news articles. I want to hear your voice! You’ve got one in person and I assure you it’s very interesting and engaging. And yes, it’s going to be more news-oriented than, say, my blog voice or Ethan’s, both of which are very conversational. That’s perfectly okay – when Christiane Amanpour writes a blog post, it sounds very different than one of Andersen Cooper’s, but there’s a market position for both. Blog doesn’t have to mean less news-y, but it does have to be slightly less informal. One trick you might want to try is framing with anecdotes – Becker’s “Good Samaritan” principle and the notion of the behavior parents teach their children could have perhaps been constructed as a bookend.

    Don’t get me wrong, though, you’re well on your way and this was an extremely helpful companion to the excellent dazzle piece you did.

  2. Hi Shivan,

    Mike hit the nail on the head. This is a fantastic news piece/ op-ed, but I would love to hear more of your voice. Great visuals and data, but I would love an anecdote to introduce the topic.


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