Financial constraints and short-term planning are linked to flood risk adaptation gaps in US cities

Abstract

Adaptation is critical in reducing the inevitable impact of climate change. Here we study
cities’ adaptation to elevated flood risk by introducing a linguistic measure of adaptation extracted
from financial disclosures of 431 US cities over 2013-2020. While cities with a higher
flood risk have higher adaptation, more than half of high-risk cities have below-average adaptation
levels. We explore three factors associated with this adaptation gap, defined as a city’s
adaptation being lower than predicted based on flood risk. We do not find that Republican
cities are more likely to have an adaptation gap. Instead, our results point to the importance of
financial constraints: cities with one standard deviation smaller unrestricted-fund-to-expense
ratio are 6.6% more likely to have an adaptation gap. We also provide evidence on the importance
of long-term planning: cities with a planning horizon shorter by one year are 4% more
likely to have an adaptation gap.

Keywords: flooding, adaptation, cities, climate change, textual analysis, financial disclosures

JEL Classification: D73, H12, H41, H70, H72, G18, C81, M40, O51