Pricing Moral Hazard in Residential Properties: The Impact of Sinkhole Claims on House Prices

Randy E. Dumm (), Charles Nyce (), G. Stacy Sirmans () and Greg T. Smersh ()
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Randy E. Dumm: Temple University
Charles Nyce: College of Business, Florida State University
G. Stacy Sirmans: College of Business, Florida State University
Greg T. Smersh: University of South Florida

The Journal of Real Estate Finance and Economics, 2022, vol. 64, issue 1, No 2, 30-70

Abstract: Abstract Previous research shows that sinkhole presence, proximity, and density create negative externalities and all have a significant negative effect on house prices. This study extends sinkhole research by examining opportunistic fraud and moral hazard associated with the relationship between sinkhole insurance claims and house prices. This is done by evaluating the relationship between house prices and the payment or denial of sinkhole insurance claims for both affected properties and neighboring properties. Applying a spatial error regression model to single-family detached home sales and sinkhole insurance claims data for Hillsborough County, Florida for the period 2008 to 2016, we find that not only do sinkhole insurance claims have a negative impact on the property associated with the claim, but also have a negative impact on surrounding properties regardless of the source of classification. This result holds for both paid and unpaid insurance claims. The results also show a price discount even after the sinkhole has been remediated.

Keywords: Moral hazard; Opportunistic fraud; Sinkholes; House prices; Sinkhole insurance claims; Sinkhole remediation (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s11146-020-09804-2

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