Public flood risk mitigation and the homeowner's insurance demand response

Stefan Borsky and Hannah Hennighausen ()
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Hannah Hennighausen: University of Graz, Austria

No 2020-09, Graz Economics Papers from University of Graz, Department of Economics

Abstract: This paper investigates the influence of public risk mitigating activities on individuals' decisions to privately mitigate their disaster risks. We exploit heterogeneity in measures under the Community Rating System in the U.S. to empirically demonstrate that government investment in flood risk communication activities crowd-in private flood insurance demand while activities that lower the flood hazard residents face crowd-out private flood insurance demand. We also give evidence that flood insurance abides by the law of demand: as communities receive price discounts on their insurance policies, demand increases. Our results imply that governments can amplify the price effect by investing in additional risk communication activities, or dilute it by investing in hazard mitigation. This paper contributes to the discussion of the efficacy of disaster risk mitigation strategies and who ultimately bears the costs of natural disasters.

Keywords: Community Rating System (CRS); flood insurance; behavioral response; risk perception; risk mitigation (search for similar items in EconPapers)
JEL-codes: D12 D83 G52 Q54 (search for similar items in EconPapers)
Date: 2020-04
New Economics Papers: this item is included in nep-env, nep-ias, nep-ore and nep-rmg
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