Recent years have seen considerable damages to coastal communities along the eastern coast of the United States from violent storms and related coastal inundation events. Scientists predict that these events will likely increase due to sea level rise and greater ocean temperatures. This damage can be minimized, and in some cases prevented, through public investment in coastal infrastructure. However, issues associated with property rights and risk perception may make it difficult for government planners to design an effective infrastructure system. Thus, public policy in this area tends to be quite difficult and has resulted in a patchwork of protective measures that have left some coastal areas less protected than they would otherwise be with an integrated system of protections. The coordination policies recommended by traditional economic theory fall short in this case because of a combination of non-linear, spatially-explicit hydrological processes involved in generating the damages caused by storm surge and inundation, as well as possible behavioral inefficiencies due to the complexity of the decision environment. This research uses economic experiments to investigate policy tools for use in coastal infrastructure planning in the case where direct government action is not feasible. This research seeks to identify voluntary mechanisms that can effectively protect coastal areas by creating ?smart? incentive structures sufficient to create integrated coastal protections. Building upon the techniques of experimental economics, mathematical programming, game theory, and hydrologic modeling, this research will address the question, "How can incentive mechanisms be designed to create an effective coastal protection system through voluntary action of coastal landowners?"
In the wake of recent large coastal hurricanes, many coastal states have become keenly interested in exploring adaption and implementation strategies for coastal protections. For instance in the mid-Atlantic, Delaware, New Jersey, New York, and Connecticut, have all recently established bodies to investigate potential vulnerabilities and adaptation responses to sea level rise. One of the challenges expressed by these agencies is the coordination of responses among independent local authorities and landowners. This research will adapt "Smart Market" techniques that have been successfully applied to address issues in other arenas, such as the development of utility and transportation infrastructure. These approaches can establish a market-like exchange environment, while also accounting for spatial and informational issues that are usually external to traditional markets. By testing alternative policy structures in the experimental economics laboratory with human participants and direct financial incentives, this research will provide key insights into the question of what policies will be most effective in coordinating local decision makers given the physical and environmental dynamic of storm surges and sea level rise in coastal areas.
