Urban adaptation to low probability shocks contrasting terrorism and natural disaster risk
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Urban Adaptation to Low Probability Shocks: Contrasting Terrorism and Natural Disaster Risk . Matthew E. Kahn UCLA and NBER Institute of the Environment Department of Economics Department of Public Policy. Introduction.

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Urban Adaptation to Low Probability Shocks: Contrasting Terrorism and Natural Disaster Risk

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Urban Adaptation to Low Probability Shocks: Contrasting Terrorism and Natural Disaster Risk

Matthew E. Kahn


Institute of the Environment

Department of Economics

Department of Public Policy


  • Paul Krugman in the New York Times, October 3, 2001 opinion piece, “Reckonings; An Injured City”:

  • “Will the terror attack permanently damage New York's position as America's economic capital? After all, America's pre-eminent city owes its position to historical accident. The natural advantages of New York -- its fine harbor, its location at the terminus of the only possible canal route to the Great Lakes --

More Krugman

  • were real enough during the city's rise. But those natural advantages have long since ceased to be important to the city's economy. What keeps New York a great city is circular causation; people and businesses locate there because of the opportunities created by the presence of other people and businesses.

  • And because the city's economy is sustained by circular causation, a sufficiently large blow to that economy could in theory do permanent

Some More Krugman

  • damage. If enough businesses and people leave, for whatever reason, the local economy could fall below critical mass and enter a downward spiral in which businesses leave because other businesses are leaving.

  • The beneficiaries of such an exodus would probably not be other great cities; instead, businesses would move out into the endless sprawl. I was not the only person in suburban New Jersey who, somewhat to my shame, felt

The End of Krugman

  • perfectly safe on Sept. 11: there are millions of people living and working nearby, but no obvious targets, because there's no there here.

  • The question is how large a blow would be needed to start such a spiral? How robust are cities, anyway? (Krugman 2001)”

My Questions

  • 1. Given that terrorist attacks will be likely to be concentrated in the dense downtown of Superstar cities, how will self interested households and firms respond?

  • 2. Could the greater metropolitan area suffer because of this re-organization?

  • 3. winners and losers from such migration?

  • 4. Are there counter-veiling trends that make us optimistic about Center Cities in this age of terrorism?

More Questions

  • 5. Is terrorism risk another “cross-city” compensating differential like climate (the Los Angeles/Detroit “exchange rate”)?

  • 6. Is the urban public focused on terrorism?

  • 7. Are there relevant lessons in contrasting coastal city terrorism risk and climate change risk?

Some Answers

  • All else equal, center city terrorism accelerates suburban growth

  • Wall Street was already leaving Wall Street before 9/11/2001

  • Commute minimizers want to be close to jobs

  • Suburban jobs --- Google’s corporate campus and many others

  • Dilution and lower density protects us against terror risk (private cars, private campuses)

Negative Productivity Externality from Suburbanized Employment?

  • Ongoing urban economics literature measuring the productivity effects of proximity. Would a law firm be more productive if located close to other firms it works with?

  • Information technology

  • Speeds faster in suburbs

  • I don’t believe that the decline of the center city as an employment hub lowers the metropolitan area’s overall productivity

  • Center city as a co-ordination mechanism

Winners and Losers

  • Buildings in the center city are long lived durable capital

  • If terrorism hollows out the center city, then owners of those buildings will suffer an asset loss

  • Land owners in the suburbs and in substitute safer cities will enjoy a windfall

Counter-Veiling Trends

  • Center Cities as “consumer cities”

  • Mayor Mike Bloomberg’s Green City push

  • Declining center city crime - In 1990, there were 2245 murders in New York City while in 2008 there were roughly 500 murders

  • Declining center city air and water pollution

  • Increased investment in “Green Space”

  • These quality of life improvements can outweigh increased terrorism risk

Implications for DHS?

  • Benefits of center city efforts will continue to be high

  • Very rich people living and working in the center city

  • Philosophical question; When DHS calculates the benefits of its policies --- are all “statistical lives” equally valuable?

  • If Don Trump feels safer because of DHS efforts, how measure this benefit relative to if Matt Kahn feels safer?

Cross-City Competition

  • I believe that any migration induced by fear of terrorism will be center city to suburb moves within a Metro area

  • I’m not sure if Metro area to Metro area migration will increase because of terrorism risk

  • Cities such as Boston are not perfect substitutes for NYC. Unlikely to see hedonic real estate pricing gradient reflecting terror compensating differential

DHS and Private Self Protection

  • Are DHS and private anti-terrorism investments complements or substitutes?

  • I would conjecture that they are substitutes

  • Use the national media and Google Insights to see if people are focused on this issue.

  • If terrorism threat is real and people are tuning it out, then DHS policy is more valuable

  • Government action more valuable if private citizens are reducing efforts and not concentrating on the real threat

Television Stories

New York City Google Search Intensity

Climate Change Adaptation vs. Terrorism

  • Low probability, scary events that Superstar coastal cities such as London and NYC face.

  • In the case of climate change, more predictable no “intelligent design”.

  • Early warning systems for climate change --- more likely to be accurate and to lead to high frequency self protection by citizens

Conclusion and the Urban/Terrorism Research Agenda

  • The Rise of “consumer city”  center city terrorism will not accelerate “sprawl”

  • Terror risk will not lower MSA productivity

  • Research: Perception vs. reality concerning risk exposure at different spatial locations

  • Cost of DHS policies in terms of trust and social capital across urban groups and immigrants?

  • Cities as immigrant centers and endogenous “home grown” terrorism?

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