From the Environmental and Urban Economics blog:
"The NY Times reports that parts of York, Leeds and Manchester have recently been flooded. Such natural disasters raise several adaptation questions. First, is this simply bad luck or a leading indicator of a risk that will repeatedly occur in the future? Second, under business as usual development patterns; how much damage does such flooding cause to structures and to urban productivity by disrupting activity? Third, what actions can individuals, firms and local governments take to reduce their exposure to flood risk? How costly will each of these actions be and what will their self protection benefits be? Fourth, do current insurance contracts encourage or discourage investment in such self protection actions? Fifth, has government policy actually crowded out private self protection by encouraging development in flood plains? Sixth, have the British figured out how to use GIS spatial software to make up to date maps of emerging flood plains? Seventh, how do current zoning laws near British rivers now operate? Who enforces them? Eighth, will a "silver lining" of this recent flooding be an increased investment in resilience and new incentives such that future floods will cause less damage to life and capital? While this blog entry has focused on the British floods, these same questions should be asked in the case of every flood region.
Do urbanites make the same mistake over and over again? The hallmark of rational expectations is that forecasting errors are uncorrelated. Why? Because if they are correlated, you could make a better forecast and make wiser investments based on this updated forecast. As I have argued before, climate change adaptation will offer the cleanest test of whether rational expectations or behavioral economics offers a better model of explaining and predicting behavior."