A Prospective Analysis of New York State's New Climate Resilience Plan
Climate change adaptation pessimists are on the ropes. They used to argue that nobody is adapting to the emerging flood and fire and heat risks that are so apparent to them. Now, they argue that such adaptation is extremely expensive and the Federal Government will have to subsidize all of these new investments.
I reject this cost pessimism. Think of your cell phone or your computer, the quality adjusted price of these goods declines by probably 5% per year due to free market competition. The same dynamic will playout in the case of climate change adaptation products. Read my recent SSRN paper.
This is all a preamble to discuss this new public policy announced by the Governor of New York to upgrade the state’s resilience in the face of extreme weather. A quote and then some microeconomic analysis;
Point #1 The announcement doesn’t say how much this new policy will cost or who will pay for it. I presume that the Governor will seek Federal funds. I believe that local state taxes and municipal bonds should pay for this local protection. Don’t spend “other people’s money” on adaptation. Spend your own money! This set of rules creates the right ex-ante accountability incentives.
Point #2 How will local tax payers judge whether the $ spent on adaptation has succeeded in reducing flood risk?
Our 2022 paper offers an empirical strategy here using lights at night dynamics. Do thee lights dim less in areas hit with floods where adaptation investments have been made?
In New York State going forward, do fewer people die in floods? Is economic activity after a flood less diminished and does activity recover faster? Lights at night dynamics captures this. Are there fewer insurance claims filed in areas that invest more in resilience?
A point that non-economists miss is that the following irony; if we expect that weather shocks are getting worse then they cause less future harm because we invest more in adaptation (i.e expecting the punch , we duck!).
What young Berkeley trained economists ignore is endogenous innovation and the Boskin Report logic. Over time, the market price of adaptation products just keeps getting cheaper. This allows even poor people to access an expanding menu of adaptation options.
Point #3 Other states will learn from New York’s policy experiment and they will adopt the good ideas here in the future. They hold a real option to make their investments later after we learn what pieces of the NY policy portfolio prove to be effective in offsetting flood risk.
In a sense, New York is a policy guinea pig here and the rest of the nation will watch this first mover.