How to approach agglomeration economies as the world experiences climate change consequences?
In the early 1900s, only 15% of the world population lived in urban areas. By the end of the 20th century, within four-generations, the urban population had grown more than in the last thousands of years. According to the United-Nations projections, they should represent two-thirds of the entire world population by 2050. These extraordinary changes in settlement and production habits accompanied – if not caused – no less drastic changes in climate patterns. According to the Intergovernmental Panel on Climate Change (Bernstein et al., 2008), temperatures rose more in the last fifty years than any other half-century period over the last half-millennium. The consequences of increased temperature anomalies are both gradual and sudden in nature. On the one hand, the widespread melting of snow and ice surfaces worldwide, particularly in Greenland and Antarctica, leads to the general elevation of sea levels. On the other hand, higher variations in temperatures generate rapid air pressure differentials, ultimately translating into more frequent and more intense storm phenomena, hurricanes, and floods.
Despite well-known congestion costs, cities have always been attractive to both workers and firms because of the opportunities they provide: wage stability, enhanced productivity, higher educational prospects, and so on. With climate change, cities are even more engaging because urban production inputs are not as vulnerable as their rural. While capital and human concentration lower personal vulnerability to natural disasters and foster recovery rates, such density can also reinforce global exposure to natural hazards. The societal, economic costs of natural disasters can reach a record high in densely populated areas. Consequently, there is a trade-off for 21st-century societies between the benefits of agglomeration and exposure to disasters. Both are essentially a function of urban development.
This Core Competence aims at studying economic agents' development choices in environmentally stressed areas. We believe having a precise understanding of what drives stakeholders' perception and comprehension of climate risks is paramount to avoid inefficiently sized or unprepared communities. To this end, our research in this area focuses on the role of (1) real estate markets and (2) official institutions and governments in their capacities to internalize climate liabilities, and (3) information diffusion and attitudes towards climate change.
While natural hazards have never been so frequent in modern history, the political economy of disaster preparation remains largely understudied. To prepare for natural disasters, local governments can adopt mitigation measures (e.g., infrastructure elevation, retrofitting, shelter construction, etc.). However, in doing so, there is a trade-off between risk reduction and risk disclosure as these initiatives may signal latent dangers of a place to unsuspecting homebuyers. Increased media coverage may ease this trade-off by revealing these dormant risks. I develop a measure of newspaper coverage of storms using data on newspapers' circulation and storms at the ZIP code level in the United States. Using the variation in this measure, I identify the effects of heightened media attention on local governments' mitigation efforts under the Hazard Mitigation Grant program managed by FEMA. I find that when newspaper coverage is high, jurisdictions that have experienced severe storms tend to implement significantly more mitigation projects. Conversely, when storm coverage is low, jurisdictions do not undertake mitigation projects after being hit by a storm. My results are primarily driven by ZIP codes with high pre-treatment levels of vacant housing units, housing units occupied by renters, and housing units owned with a mortgage, but not by proximity to a local election, mayor partisanship, or incumbency status. I argue that local governments may be strategically underinvesting in disaster preparation to avoid revealing their jurisdictions' inherent risk to otherwise uninformed property investors.