Thursday, October 27, 2022

Moral Hazard in Climate Change Adaptation

Fascinating color on sea level rise in Jakarta, and good insight into the moral hazard associated with certain types of adaptation.

Abstract:  Sea level rise poses an existential threat to Jakarta, which faces frequent and worsening flooding. The government has responded with a proposed sea wall. In this setting, I study how government intervention complicates long-run adaptation to climate change. I show that government intervention creates coastal moral hazard, and I quantify this force with a dynamic spatial model in which developers and residents act with flood risk in mind. I find that moral hazard generates severe lock-in and limits migration inland, even over the long run.

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