The decision to abandon or not cannot be left to the market. It could be if federal, state, and local government could credibly commit not to provide any financial assistance to the city's residents, businesses, and other institutions in the event of another disaster--but government could not make such a commitment. Or if government could require the residents, businesses, etc. to buy insurance that would cover the complete costs of such a disaster. But again it could not; insurance in such an amount, to cover so uncertain a set of contingencies, could not be bought in the private market.Posner goes on to discuss the costs of rebuilding, including the expected cost of future flooding. In the process, he sheds light on the estimated economic costs of Katrina.
So the decision would have to be made by government, and, ideally, it would be based on cost-benefit analysis. In such an analysis, the expected cost (that is, the cost discounted by the probability that it will actually be incurred) of a future disastrous flood would probably weigh very heavily and could easily tip the balance in favor of abandonment.
. . .
New Orleans is becoming more vulnerable not only because of the terrorist threat, but for three other reasons as well. The city is sinking because (paradoxically) flood control has prevented the Mississippi River from depositing sediment to renew the subsiding silt that the city is built on. The wetlands and barrier islands that provide some protection against the effects of hurricanes are disappearing. And global warming is expected to increase sea levels and also to increase the severity and frequency of storms--all factors that will make New Orleans more vulnerable to future floods.
Thursday, September 08, 2005