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General Equilibrium Effects Protect Us from Sea Level Rise
Justin Gillis is a consistent writer for the New York Times. Here is his piece from today talking about a new paper published in PNAS. Yes, coastal areas will face challenges from sea level rise but such areas face strong incentives to adapt to these challenges. Mr. Gillis never engages with the micro economics of climate change economics. Why is he so pessimistic about our ability to adapt to the challenge that he has clearly alerted us to? For long time readers of this blog, you know that I have written out a clear vision for how coastal areas will adapt and posted it here.
Mr.Gillis needs to take a course in general equilibrium. If certain land along the coast is lost, then demand for other land that is on higher ground will increase. This will cause a land value windfall for those who own this “higher ground” land. While the NY Times is happy to talk about the billions of dollars of lost land on the coasts, it never talks about the opposite effect as safer land becomes more valuable. (To crack a half joke, recall that in the Superman movie that Lex Luthor had purchased Colorado real estate because he planned to nuke California. He recognize that he would own the next beach front property. The loss to California home owners would end up in his pocket. )
Such general equilibrium effects are easy to ignore if you haven't studied economics or your world view is such that you want to dismiss equilibrium concepts. Self interested people will seek out higher ground, will identify where it is and build there. This is the micro economics of adaptation and a stronger more resilient economy emerges.
Now my critics say; “but Matt there are structures built up on the coasts”. As I argue in the paper posted above, those structures are not going to live forever and the investment in their upkeep and maintenance is a choice variable. We even have the option of disassembling those structures and taking their materials to higher ground (this is the Lego Economy that I sketch).
Source: http://greeneconomics.blogspot.com/2016/02/general-equilibrium-effects-protect-us.html
