Efficient Adaptation to Flood Risk
AbstractThis paper studies whether private adaptation to flood risk is economically efficient. We estimate the return to elevating houses, one of the most significant private defensive investments against flooding, using two decades of microdata on the universe of houses and flood damages in high-risk flood zones in the Atlantic and Gulf Coast United States. We find that undertaking adaptation is socially optimal in the highest-risk areas over a house's lifetime but that individual homeowners may underinvest in flood protection because the benefits do not accrue over their average tenure. We identify conditions under which adaptation yields the highest returns.
CitationHovekamp, Winston P., and Katherine R. H. Wagner. 2023. "Efficient Adaptation to Flood Risk." AEA Papers and Proceedings, 113: 304-09. DOI: 10.1257/pandp.20231103
- G22 Insurance; Insurance Companies; Actuarial Studies
- G28 Financial Institutions and Services: Government Policy and Regulation
- Q54 Climate; Natural Disasters and Their Management; Global Warming
- R31 Housing Supply and Markets
- R38 Production Analysis and Firm Location: Government Policy