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Gales of Creative Destruction
Innovative Governance and Entrepreneurial Development in Post-Katrina New Orleans
February 21, 2007
"Living cities" play a crucial role in the positive link between economic freedom and prosperity. There is no upper bound on their size, and they appear to recover effectively from disasters. Cities and their suburban hinterlands form in ways that accommodate entrepreneurial activities. At the other end of the spectrum, there are declining cities that are less likely to recover.
In this working paper, Sanford Ikeda and Peter Gordon follow Glaeser and Gyourko (2005) in arguing that government programs that help to sustain poverty can establish a lower bound by transforming a declining city into what we call a "welfare city." Their data show that New Orleans has been such a city. Consequently, it was ill-prepared to recover from a large-scale natural disaster and bears some of the blame for regional under-performance. With time and the right institutions in place, especially of the thin-at-the-top variety, New Orleans can re-emerge as a living, entrepreneurial city. They highlight Robert Nelson's concept of the "private neighborhood," which enables local communities to choose the thickness of their own rules, as one such institution.
The ideas presented in this research are the authors' and do not represent official positions of the Mercatus Center at George Mason University.
