I don’t expect people would move into such an area for a tiny chance at receiving a payment of this size
This isn’t something I expect either, and I think you may be slightly misunderstanding the mechanism by which moral hazard leads to bad outcomes.
When moral hazard hurts regular people who have their money in the banking system, it’s not because a bank executive specifically tried to bankrupt their corporation to collect bailout funds from the government. Rather, it is the toxic incentive structure caused by privatized payoffs and socialized losses. These executives can gamble money on risky business practices knowing that they’ll keep the profits and be rewarded if they succeed, but the government will pick up the mess if they backfire.
Right now the state flood insurance systems of California and Florida are insolvent, because these states have been paying out claims at an increasing rate while the homeowners’ lobbies have blocked a corresponding increase in insurance prices. Private insurers are losing money and considering ending their business in these states altogether, and then the state insurance funds will be unable to pay out all its obligations in the next inevitable (and entirely foreseen) 100-year flood. The federal government has been exacerbating this problem by 30 years by subsidizing flood insurance costs, which encourages people to keep living in flood-prone areas they otherwise would rightly avoid.
But, payments from GiveDirectly are on a far smaller scale, and may not have an analogous effect.
I don’t think we disagree much if any—my next point was that the people in these areas had decided to live there prior to and independently of GiveDirectly’s action. To the extent they were engaging in a cost-benefit analysis, the current residents had already decided it was worth the flooding risk.
At least in Florida, my understanding is that many of the more at-risk properties would not have been built at all (or at least re-built) but for the government subsidized insurance covering the bulk of losses with very high probability. Between the size of the GD payments, and the small fraction of flooded people who receive them, an analogous effect here seems unlikely to me.
This isn’t something I expect either, and I think you may be slightly misunderstanding the mechanism by which moral hazard leads to bad outcomes.
When moral hazard hurts regular people who have their money in the banking system, it’s not because a bank executive specifically tried to bankrupt their corporation to collect bailout funds from the government. Rather, it is the toxic incentive structure caused by privatized payoffs and socialized losses. These executives can gamble money on risky business practices knowing that they’ll keep the profits and be rewarded if they succeed, but the government will pick up the mess if they backfire.
Right now the state flood insurance systems of California and Florida are insolvent, because these states have been paying out claims at an increasing rate while the homeowners’ lobbies have blocked a corresponding increase in insurance prices. Private insurers are losing money and considering ending their business in these states altogether, and then the state insurance funds will be unable to pay out all its obligations in the next inevitable (and entirely foreseen) 100-year flood. The federal government has been exacerbating this problem by 30 years by subsidizing flood insurance costs, which encourages people to keep living in flood-prone areas they otherwise would rightly avoid.
But, payments from GiveDirectly are on a far smaller scale, and may not have an analogous effect.
I don’t think we disagree much if any—my next point was that the people in these areas had decided to live there prior to and independently of GiveDirectly’s action. To the extent they were engaging in a cost-benefit analysis, the current residents had already decided it was worth the flooding risk.
At least in Florida, my understanding is that many of the more at-risk properties would not have been built at all (or at least re-built) but for the government subsidized insurance covering the bulk of losses with very high probability. Between the size of the GD payments, and the small fraction of flooded people who receive them, an analogous effect here seems unlikely to me.