Hurrican Katrina & Risk Tolerance

http://www.slate.com/id/2125822/

Steven Landsburg argues in his article that federal aid for disaster relief subsidizes the risk of individuals who in a world without aid would live in the city because they are exchanging price for safety. He creates a world where two cities (Gogg and Mogg) are alike in many ways except for their location proximity to natural disasters. In a perfect world, housing prices would reflect this information and people could choose to live in a riskier place in exchange for lower cost of living. He argues that because their is federal relief for disasters that what ends up happening is the cost of living in the riskier city increases and the less risky city decreases, eventually leading to comparable, homogeneous cities.

Interesting comparison but a flawed model it seems like.

This hits on many things we learned about in Decision Modeling. Modeling risk, how to account for variations in rish, and how policies can directly effect the amount of risk an individual might be willing to take. Of course, the reasoning is pretty isolated that someone would correlate federal subsidaztion of diaster relief and cost of living seems to be a pretty risky assumption. Although, the logic is interesting, the assumptions need to be analyzed.