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. 

 https://allanhsiao.github.io/files/Hsiao_jakarta.pdf

https://allanhsiao.github.io/

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.