Flood Risk Belief Heterogeneity and Coastal Home Price Dynamics: Going Under Water?

97 Pages Posted: 25 Sep 2017 Last revised: 5 Sep 2022

See all articles by Laura Bakkensen

Laura Bakkensen

University of Arizona - School of Government and Public Policy

Lint Barrage

University of Maryland

Date Written: September 2017

Abstract

How do climate risk beliefs affect coastal housing markets? This paper provides theoretical and empirical evidence. First, we build a dynamic housing market model and show that belief heterogeneity can reconcile the mixed empirical evidence on flood risk capitalization. Second, we implement a door-to-door survey in Rhode Island. We find significant flood risk underestimation and sorting based on flood risk beliefs and amenity values. Third, we quantify the model and estimate that coastal prices currently exceed fundamentals by around 13% in our benchmark setting, with the potential for significantly higher overvaluation in other areas. Finally, we quantify both allocative inefficiency and distributional consequences arising from flood risk misperceptions and flood insurance policy reform.

Suggested Citation

Bakkensen, Laura and Barrage, Lint, Flood Risk Belief Heterogeneity and Coastal Home Price Dynamics: Going Under Water? (September 2017). NBER Working Paper No. w23854, Available at SSRN: https://ssrn.com/abstract=3042412

Laura Bakkensen (Contact Author)

University of Arizona - School of Government and Public Policy ( email )

315 Social Science Building
Tucson, AZ 85721
United States

Lint Barrage

University of Maryland ( email )

College Park
College Park, MD 20742
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
59
Abstract Views
420
rank
495,827
PlumX Metrics