The Distributional Impact of FEMA's Community Rating System

47 Pages Posted: 4 Aug 2022

See all articles by Daniel Brent

Daniel Brent

Pennsylvania State University

Yongwang Ren

Penn State - Department of Agricultural Economics, Sociology, and Education

Douglas H. Wrenn

Pennsylvania State University, Agricultural Economics, Sociology, and Education

Date Written: July 14, 2022

Abstract

CRS incentivizes investments in risk reduction above NFIP standards using insurance premium discounts. These discounts are subsidized by increasing premiums in non-CRS communities. We examine the distributional impact of this cross-subsidization process. We find that redistribution does occur, but the gains and losses are not economically large with 95% of households gaining or losing no more than 0.3% of their income. We also find that the strongest predictor of gains is flood risk. Thus, CRS appears to reduce the cost of living in the riskier communities, a result that has clear policy implications if it induces sorting into riskier locations.

Keywords: Flood risk, flood insurance, distributional effects, community rating system

JEL Classification: G22, Q52, Q58, R14

Suggested Citation

Brent, Daniel and Ren, Yongwang and Wrenn, Douglas H., The Distributional Impact of FEMA's Community Rating System (July 14, 2022). Available at SSRN: https://ssrn.com/abstract=4163230 or http://dx.doi.org/10.2139/ssrn.4163230

Daniel Brent

Pennsylvania State University ( email )

HOME PAGE: http://danielbrent.com

Yongwang Ren

Penn State - Department of Agricultural Economics, Sociology, and Education ( email )

University Park, PA 16802-3306
United States

Douglas H. Wrenn (Contact Author)

Pennsylvania State University, Agricultural Economics, Sociology, and Education ( email )

University Park, PA 16802-3306
United States

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