Does Market Price Sea Level Rise Risk? Evidence from High-Tide Flooding

Abstract

Scientific findings suggest that sea level rise (SLR) is imposing a serious threat to the sustainability of coastal communities, but the evidence is mixed as to whether the market adequately prices the risk. In this paper, we leverage a novel source of identification—plausibly random variations in high tide flooding, a direct consequence of SLR—to credibly estimate the impact of SLR. We find that exposure to one additional day of HTF in the past 12 months reduces average housing price in the affected zip codes by a mere 0.08% (or 0.43% at the mean number of days with HTF). We then estimate the impact of HTF on climate beliefs to find that the strength of support for government mitigation policies explains such a small capitalization effect. These findings underscore the risk of policy-induced moral hazard.