The Hidden Costs of Place-Based Biases: How Governments and Nonprofits Inhibit Mobility and Growth

Place-based Bias Keeps People Stuck

Local governments and nonprofits often operate under a well-intentioned but flawed assumption: that keeping citizens in their current communities is the best outcome. Whether through direct support to individuals or environmental improvements, policies and programs are often designed to sustain residency rather than broaden opportunities outside the community. This place-based bias can result in suboptimal policies that prioritize maintaining local populations over fostering true mobility, reinforcing existing inefficiencies, and protecting tax revenues or nonprofit funding sources at the expense of individual growth and economic freedom.

This article explores how place-based incentives shape government and nonprofit decision-making, why these biases persist, and how shifting the focus from location preservation to individual opportunity could unlock greater economic and social progress.

About the Author:  Jeff Hulett leads Personal Finance Reimagined, a decision-making and financial education platform. He teaches personal finance at James Madison University and provides personal finance seminars. Check out his book -- Making Choices, Making Money: Your Guide to Making Confident Financial Decisions.

Jeff is a career banker, data scientist, behavioral economist, and choice architect. Jeff has held banking and consulting leadership roles at Wells Fargo, Citibank, KPMG, and IBM.

The Problem with Place-Based Incentives

Many policies that appear to support communities actually serve to protect local government revenue streams rather than improve outcomes for residents. Consider the case of California’s wildfire-prone areas. Instead of acknowledging private insurance market signals—such as rising premiums or insurer exits—as indicators that certain areas are becoming unlivable, local governments double down on keeping people in place. They did this by capping insurance premiums and providing subsidized insurance programs.  Why? Because their budgets are tied to property tax revenue, which is based on property values. If too many residents leave, tax bases shrink, forcing difficult financial decisions.  The very people who make policy decisions have a bureaucratic job protecting place-based bias.

A more effective approach would be to use public resources to facilitate orderly relocation rather than artificially sustaining high-risk living. In a competitive market like homeowners insurance, prices serve as a powerful distillation of risk, aggregating vast amounts of information from insurers, actuaries, and market forces into a single, dynamic signal. Economists prize this efficiency because it allows individuals to make informed choices about where to live and invest. Yet, governments often ignore these signals, prioritizing municipal jobs and tax stability over resident well-being—ultimately leaving citizens more vulnerable to economic and environmental crises.

Ironically, numerous sources in the popular press criticized private insurance companies for failing to support residents during the 2025 California wildfires. These wildfires devastated Los Angeles. It was, in fact, the state government that drove away private insurers. Government policies forced insurers to either offer policies below their cost or to exit the market. The government gave the insurers little choice. The government's approach ultimately created peril for its own citizens - that is - the people paying the policymakers' and bureaucrats' salaries.

A Nonprofit Example: Reinforcing Rather Than Solving Problems

Place-based bias is not limited to governments. Many nonprofits, often seen as champions of social mobility, can also fall into the trap of preserving communities in ways that hinder individual progress.

A conversation with a nonprofit leader illustrated this issue. He was frustrated that certain developers built “ugly” housing that, in his view, attracted the “wrong element,” leading to increased crime. His nonprofit worked with law enforcement and local officials to strengthen zoning laws, making it harder for such developments to continue.

However, the developers were merely responding to demand. The real issue was not the buildings themselves but the conditions that made them necessary. Instead of fighting an uphill battle to preserve a version of the neighborhood that no longer existed, I suggested a different approach: use nonprofit resources to help people relocate to areas better suited to their needs and aspirations.

His reaction—outright rejection—was telling. “We could NOT do that. Our funders would never go for it! We are here to protect the local community.” But what does “protecting the local community” mean when it prevents individuals from making better choices for themselves? In reality, this approach inhibits economic evolution and personal growth, limiting people’s choice sets rather than expanding them.  It may turn out -- some people value “ugly” houses because they want to stay and can afford them.  Whereas others stay because they feel stuck.  It is not about deciding what the residents' preferences should be, it is about giving the residents mobility options to help them achieve their diverse and evolving goals. "If you love someone, set them free."

Workforce Training That Limits Mobility

Many nonprofits, while aiming to support local economies, unintentionally restrict individual opportunity. Consider a nonprofit focused on retraining workers for a declining local industry, such as coal mining or manufacturing. Instead of guiding individuals toward high-growth sectors or locations with stronger job markets, resources are funneled into keeping them in place—despite diminishing employment prospects.

This effort assumes staying is the best outcome, often due to donor expectations or a mission to "revitalize" the local economy. A more effective approach would offer relocation support or career counseling for emerging industries. Yet, nonprofits frequently resist, prioritizing local stability over individual mobility.

Some may genuinely prefer to stay, and they should have that choice—but others feel trapped. The goal should not be to dictate whether people stay or leave but to expand their options to pursue their own evolving goals.

The Alternative: A Focus on Individual Mobility

Rather than resisting change, policymakers and nonprofit leaders should focus on empowering individuals to move toward greater opportunity. This shift in perspective would require:

1. Redirecting Public Resources – Instead of investing in policies that artificially sustain struggling areas, funds could be allocated to relocation assistance, retraining programs, and mobility grants.

2. Recognizing Market Signals – Insurance companies, developers, and labor markets already provide valuable information about where resources are best allocated. Governments and nonprofits should interpret these signals as indicators for policy adjustments rather than threats to their existing models.

3. Changing the Narrative – Moving should not be seen as failure but as progress. Just as people move for better jobs, education, and quality of life, policies should encourage, not discourage, transitions that improve economic well-being.

A Call for Rethinking Place-Based Policies

At the extreme, some places are no longer viable for long-term habitation — whether due to economic decline, environmental risks, or other factors.  Even more likely is that diverse people have evolving preferences and would benefit from mobility assistance to achieve their utility.  The role of policy should not be to fight against these forces but to help individuals adapt to them. Similarly, nonprofits should reconsider their mission: Is the goal to preserve communities in some idealized form, or to provide individuals with the tools to seek better opportunities?  Along the lines of the economist Joseph Schumpeter's creative destruction -- by helping people to vote with their feet -- communities can increase their motivation to change and make living environments better.

By shifting the focus from restrictive place-based policies and programs to empowering people, we can unlock greater social and economic mobility, allowing individuals to pursue the best opportunities available to them rather than being constrained by outdated policies and restrictive funding models.

Resources for the Curious

1. Hulett, Jeff. Signals in the Smoke: Why Markets Reveal Truths That Intervention Hides. The Curiosity Vine, January 19, 2025. (Argues that government intervention in California’s insurance market distorts risk signals, preventing residents from making informed, sustainable choices.)

2. Glaeser, Edward. Triumph of the City. Penguin Press, 2012. (Explores the economic forces that shape cities and how policies influence urban success and decline.)

3. Chetty, Raj et al. The Opportunity Atlas: Mapping the Childhood Roots of Social Mobility. Harvard University, 2018. (A major study on how geography affects economic opportunity.)

4. Moretti, Enrico. The New Geography of Jobs. Harper Business, 2013. (Discusses how labor markets and mobility shape economic growth.)

5. Katz, Bruce & Nowak, Jeremy. The New Localism: How Cities Can Thrive in the Age of Populism. Brookings Institution Press, 2018. (Examines how place-based policies shape economic development.)

6. Shleifer, Andrei & Vishny, Robert. The Grabbing Hand: Government Pathologies and Their Cures. Harvard University Press, 2002. (Explores how government incentives distort economic policies.)

7. Klein, Daniel B. Knowledge and Coordination: A Liberal Interpretation. Oxford University Press, 2013. (Discusses the limits of centralized decision-making and the importance of market signals.)

8. Desmond, Matthew. Evicted: Poverty and Profit in the American City. Crown Publishing, 2017. (Examines how housing policies and place-based interventions shape poverty and mobility.)

9. Brown, Alexandra, David Buchholz, Daniel Davis, and Arturo Gonzalez, editors. Economic Mobility: Research & Ideas on Strengthening Families, Communities & the Economy. Federal Reserve Bank of St. Louis & Board of Governors of the Federal Reserve System, 2016. (Analyzes geographic disparities in economic mobility.)

10. Oates, W. E. An Essay on Fiscal Federalism on JSTOR. Journal of Economic Literature, 1120. https://doi.org/2564874 (A foundational work on how local tax incentives influence public policy.)

11. Clear Impact. Nonprofit Workforce Development Trends and Challenges. Clear Impact, 2021.