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Disaster on the Horizon: The Price Effect of Sea Level Rise

40 Pages Posted: 21 Nov 2017 Last revised: 6 Dec 2017

Asaf Bernstein

University of Colorado at Boulder

Matthew Gustafson

Pennsylvania State University - Smeal College of Business

Ryan Lewis

University of Colorado, Boulder

Date Written: December 2, 2017

Abstract

Homes exposed to sea level rise (SLR) sell at a 7% discount relative to observably equivalent unexposed properties equidistant from the beach. This discount has grown over time and is driven by sophisticated buyers and communities worried about global warming. Consistent with causal identification of long horizon SLR costs, (1) we find no relation between SLR exposure and rental rates, (2) despite decreased remodeling among exposed homeowners, current SLR discounts are not caused by differential investment, (3) results hold controlling for flooded properties and views. Overall, we provide the first evidence on the price of SLR risk and its determinants. These findings contribute to the mixed literature on how investors price long-run risky cash flows and have implications for optimal climate change policy.

Keywords: Climate Change, Asset Prices, Beliefs, Sea Level Rise, Real Estate

JEL Classification: G1, G14, Q54

Suggested Citation

Bernstein, Asaf and Gustafson, Matthew and Lewis, Ryan, Disaster on the Horizon: The Price Effect of Sea Level Rise (December 2, 2017). Available at SSRN: https://ssrn.com/abstract=3073842 or http://dx.doi.org/10.2139/ssrn.3073842

Asaf Bernstein

University of Colorado at Boulder ( email )

Campus Box 419
Boulder, CO 80309
United States

Matthew Gustafson

Pennsylvania State University - Smeal College of Business ( email )

East Park Avenue
University Park, PA 16802
United States

Ryan Lewis (Contact Author)

University of Colorado, Boulder ( email )

Boulder, CO 80309-0419
United States

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