Dis Incentives

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Guy Higgins Firestorm Principal

Guy Higgins
Firestorm Principal

Recently an article appeared in the press concerning earthquakes, structural safety and risk. That article specifically addressed a situation in Seattle.

First, a bit of background. Seattle was founded in the mid-1850’s and many of the buildings in historic downtown Seattle date from the last decade of the nineteenth century. The state of the art for construction then was brick and stone masonry – solid and (largely) fireproof. Fireproof was important to Seattle-ites then because the city burned, almost completely, in 1889. These masonry buildings in Seattle are not reinforced with structural steel framework, and they are rigid and don’t respond well to the kinds of forces generated by earthquakes – in fact, they are significant safety hazards, since they tend to fracture, collapse and shed large “chunks” (technical term) into the streets or onto adjacent buildings.

This vulnerability to earthquake shocks is very important in Seattle since the city is adjacent to the Cascadia Subduction Zone. This zone is where the northern Pacific tectonic plate is sliding under the North American Plate and is a source of earthquakes. The subduction zone is active, but has not generated a major quake since 1701 when a 9.0 (or greater) quake created a tsunami (like the tsunami that devastated the Fukushima Daiichi nuclear power plant) and caused major sections of the landscape to drop several feet (much like the Easter Sunday 1964 quake in Alaska). Seismologists think that the subduction zone has built up significant energy and that a major earthquake is likely in the next decades (seismologists can predict, precisely, where earthquakes will occur – but not, precisely (or even accurately) when they will occur).

Seattle:  Pike Place Market, 1968 Item 77158, Clerk File 263133 (Record Series 1802-01)

Pike Place Market, 1968
Item 77158, Clerk File 263133 (Record Series 1802-01)

So, Seattle is facing a significant risk of a major earthquake and it has well over a thousand buildings that are almost certain to collapse with great loss of life and, perhaps, thousands of injuries when such a quake happens. The risk associated with this situation is about the timing – not the event. Seattle, particularly the vulnerable old downtown, will experience a very major earthquake. All of this information is well known by the City of Seattle, building owners in Seattle and the Washington state government. It is also common knowledge that these vulnerable buildings can be modified and upgraded to be more earthquake-survivable as has been done with older buildings in Los Angeles and other Southern California cities.

So, what’s the problem?

The problem is two-fold:

  • Neither the State of Washington nor the City of Seattle has required that these older, vulnerable buildings be structurally upgraded to be less vulnerable to earthquakes.
  • Both the State of Washington and the City of Seattle are considering enacting such legislation requiring structural upgrades to older buildings. They can’t (or are not able/willing to) provide building owners with assurance that any structural upgrades performed prior to the enactment of legislation will be “grandfathered in” or otherwise fairly dealt with. As the article explicitly points out, “…the company that owns it (a vulnerable building) set aside money for a seismic upgrade several years ago (emphasis added) but the city wouldn’t guarantee that the work would pass muster in the future…” That means, of course, that any building owner who does the “right thing” is placing herself at risk of having to re-do upgrades to become compliant and having wasted the original upgrade cost.

Both the State of Washington and the City of Seattle are working through all of the numerous, wide-ranging, and difficult issues surrounding legislation.

All of that said, the result is that, today:

  • Everyone knows that there is a significant problem.
  • There is a broad-based consensus that the problem should be solved.
  • Many people have allocated resources to solve their part of the problem.
  • The absence of a formal position by the city and state regarding structural upgrades performed prior to legislation has created a “perverse” incentive for building owners to not do “the right thing.”

Bottom line – people wanting to do the right thing from their perspective and be responsive to their stakeholders are not doing the right thing because disincentives have been (passive voice intentional) inadvertently established. These disincentives have resulted in significant risks to building owners, insurance companies and, most importantly, building tenants and citizens of/visitors to Seattle.

RockandahardplacePublic/private partnerships are frequently discussed, but in instances as described above, such partnerships are not created and everyone (building owners and city/state legislators) is placed between the proverbial rock (the life/safety risk of not taking action) and a hard place (the financial/compliance risk of taking action prior to an expected mandate):

  • The rock
    – Building owners at financial/compliance risk of taking action prior to the mandate
    – Legislators at the fiduciary risk of assuming responsibility for upgrades implemented pre-legislative action that may not be adequate/acceptable
  • The hard place
    – Building owners at risk of injuries or deaths resulting from not upgrading the structural integrity of their properties
    – Legislators at risk from dissatisfied constituents for not taking “immediate” action (legislators get credit for taking just-in-time action, but don’t get credit for taking action two years ahead of time

Inadvertent disincentives to desirable action create real risks for companies, organizations and governments. As always, the key is to think about the risks and then PREDICT.PLAN.PERFORM® to avoid or eliminate (in this case) those disincentive-created risks.

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