In a recent paper entitled “Flooded Cities“, the authors Adriana Kocornik-Mina, Thomas K.J. McDermott, Guy Michaels and Ferdinand Rauch, want to understand why there are so many people still living in flood-prone areas. What is their point and are they right in their arguments?

For this they focus on flood data from large floods giving them a sample of 53 flood events that affected 1,868 cities in 40 countries worldwide from 2003-2008, displacing almost 90 million people worldwide. As a proxy for economic activity the authors use nightlights, and to understand how many people were affected by the floods they used population density and a measure for urban areas (urban extent grids from the Center for International Earth Science Information Network (CIESIN) at Columbia University, for the year 1995 (GRUMPv1, 2015)). Their results are as follows:

Taken in the aggregate, the results … indicate that globally, urban economic activity is concentrated disproportionately in low elevation areas, which are more prone to
flooding, and this is even true in regions that are prone to extreme rainfall.

When we analyze the local economic impact of large  floods, we find that on average they reduce urban economic activity by between 2 and 8 percent in the year of the flood… These effects are even stronger (up to a 12 percent reduction) for low elevation areas.

[R]ecovery, even in the harder hit low elevation areas, is relatively quick, with economic activity fully restored within a year of the flood.

So they basically suggest that floods tend to have very short-term impacts and flood-prone areas correlate with higher income.

In their article and in a more policy-oriented version they note that inhabitants return to the flood-prone areas mostly because

… governments typically foot much of the bill for building and maintaining flood defences.

As a result, developers do not take on the full risk of constructing homes in areas that are prone to flooding, and many people looking for new homes for their families move into these buildings. And so, the global population at risk of flooding keeps growing.

The authors are making a bit of a mistake here. If governments pay for flood defences then the area would not be flood-prone anymore (of course) and it makes perfect sense that the previous inhabitants return to their homes. So it cannot be this. In effect, the authors even recognize this themselves:

When cities are devastated by large floods, low-lying areas sustain more damage than other areas. But, like other parts of flooded cities, the low elevation areas recover rapidly… But unfortunately, it means that economic activity does not move to safer areas, so it remains at risk from the next big flood.

Hence the question that the authors did not answer convincingly is the original one that they set out to ask: Why do people move back to flood-prone areas? And, my guess is that the incentives for moving back to flood-prone areas are precisely the same as those for which the people moved there in the first place (that is, unless they did not know about the flood frequency in the first place which seems unlikely). The problem is that we know, in fact, very little about the underlying reasons! However, some of these incentives/reasons could be depending on, or categorized by, income:

  • rich region: amenities (like living close to the sea).
  • agricultural region: higher agricultural productivity (because of e.g. more water)
  • poor region: pressure to move to this flood-prone region because there is no other option

The New Economic Geography argument, that there are increasing return to agglomeration, should not hold simply because one could build a new city in areas that are less flood-prone. Hence, one of the three arguments above seems most reasonable. Another point could be that most flood-prone regions are at rivers or at the sea, which implies better options for trading, for access to (free) food through fishing. This is the same point as the one raised by higher agricultural productivity.

The authors then go on to argue that

To contain this large and growing social problem we should, at the very least, tighten the control over construction in flood-prone areas. Or, even better, home builders who insist on constructing new houses in flood plains should be required to bear the full costs that they impose on society in the long run.

This suggestion is very one-sided, indeed, and implies that those that live in flood-prone areas are `guilty’ of doing so. But it could very well be that the economic benefit from producing in that area outweighs the social costs of a flood. In this case the government should actually subsidize (in case there are positive externalities from living there) those regions. Or it should provide sufficient disaster aid to allow people to quickly move back into those areas. And it certainly implies that the government should potentially pay for flood defences (depending on the costs) to make those regions safer.

If individuals move to flood-prone areas simply because it provides an amenity value to them that exceeds their personal costs in case a flood occurs, then the government needs to evaluate whether this amenity value minus the personal cost exceeds potential social costs, e.g. to infrastructure. If it does, then there is an overall social benefit from living in flood-prone areas. The question then still arises as to whether a government should provide disaster aid of any kind in case a flood occurs. Or whether these individuals then would need to pay for this disaster aid themselves.

Overall, the problem of what to do with population in disaster-prone areas is not as simple as some authors make it out to be, and it certainly depends on the reasons for which people live in those areas as much as it depends on the social impact that these people have from living in those regions and the potential costs of disasters.