The Congressional Research Service published a solid new report last week entitled “Vulnerability of Concentrated Critical Infrastructure: Background and Policy Options. It’s available here.
The report examines the forces that have led to the geographic concentration of certain types of critical infrastructure (e.g. petrochemical operations on the Gulf of Mexico, west coast port facilities, rail hubs in Chicago and Missouri), including natural location of resources, economies of scale, and agglomeration (or cluster) economies.
The report then considers if and how the geographic concentration of critical infrastructure creates an unnecessary vulnerability to terrorism or natural disasters, and whether a government should find policy mechanisms to encourage the dispersion and/or redundancy of infrastructure as a hedge against catastrophic loss…or whether the natural mechanisms of the insurance and risk management markets can fulfill this function over time.
I think this is in area where a broad policy response is warranted in theory, but could probably never work in practice. Trying to impose broad policy conditions on the future development of entire sectors will impose costs that are almost certainly greater than potential benefits. But at the margins there is a role for government to develop or identify “strategic capacity reserves” similar to the Strategic Petroleum Reserve, to act as a hedge or safety stock against catastrophic loss, perhaps in areas such as port capacity and public health infrastructure.