Climate Risk Exposure and Risk Perceptions and Poverty
The NY Times recently published an interesting piece focused on Bayesian Learning regarding emerging climate risks.
The author is worried that climate change poses new risks to America’s map. Some places face more flood risk while others face more fire risk. The author correctly argues that these risks are random variables. The author correctly points out that many prediction teams are now investing time and $ to offer informed predictions about these risks. The author claims that rich people will have access to better information about the emerging risks than poor people and that richer people will have an easier time adapting to the risks than poorer people because they have access to better data.
Economic Points
#1 Richer people always consume higher quality goods than poorer people. So, the real adaptation imperative is to reduce poverty. Poverty reduction occurs through skill accumulation see Jim Heckman’s agenda.
#2 As I discuss in this 2021 piece, private firms are competing with public climate data providers such as First Street Foundation (FSF) in providing such climate risk maps. The author could volunteer to work for FSF who provides their climate risk data for free to people. Don’t such efforts level the playing field?
#3 Poor people do not buy homes. They are more likely to rent and their rent will be lower if the property does face flood and fire risk. They hold a real option to move away from a place that is too risky. The owner of the property has an incentive to fortify the asset to protect it from emerging risks if demand for the property declines. Poor people tend to consume higher risk, cheaper products. I agree with the author here but the solution is poverty alleviation through capitalism’s tools (see point #1 above).
#4 The author appears to embrace a behavioral economics view that people are fools. In my work, I counter that more and more of us know that we do not know climate patterns. Such humble people use Google and talk by social media to people who live in the area about the emerging risks. The author implicitly assumes that the access to information is limited. In our social media age, this is incorrect.
#5 How does the author know what is the “best” climate risk model? What model is he endorsing? Why doesn’t he buy that forecast and share it with poor people? Why can’t markets be used here by compassionate rich people to buy a forecast and then to share it with the vulnerable? This incentive scheme would reward those who bother to create a great climate forecast.
So, what is my point? The author makes an interesting economics claim but then doesn’t explore the economics of his logic.
Poor people do face more risk due to climate change. If they become richer, they will invest more to protect themselves from place based risks. Many poor people are poor due to substance abuse, weak schooling and growing up in broken homes. These issues have little to do with climate change. Reduce poverty and more of us can adapt to climate change.