From Floods To Immigration, Pursuit of 2nd Best Policy

Forty years ago the economists Finn Kydland and Ed Prescott wrote a paper (for which they later won the Nobel Prize) observing that there are situations when the government makes a promise it can't be expected to keep, and that policy inevitably reflects that reality.For instance, they observed, the best policy regarding floods would be to simply disallow all construction in a floodplain, or at least forswear any public financial assistance to people who do build there and subsequently have property damaged by a flood.However, such a promise cannot be kept: the political pressures to help victims will be too great to resist. What's more, people recognize that reality, so they fail to heed the government warnings and build in the floodplains anyway, which in turn forces the government's hand by putting it in a situation where it finds itself obligated to provide assistance after a flood.