Going Underwater? Flood Risk Belief Heterogeneity and Coastal Home Price Dynamics

Laura A Bakkensen and Lint Barrage

The Review of Financial Studies, 2022, vol. 35, issue 8, 3666-3709

Abstract: How do climate risk beliefs affect coastal housing markets? This paper provides theoretical and empirical evidence. First, we build a dynamic housing market model and show that belief heterogeneity can reconcile prior mixed evidence on flood risk capitalization. Second, we implement a door-to-door survey in Rhode Island, finding significant flood risk underestimation and sorting based on risk perceptions and amenity values. Third, we estimate that coastal prices exceed fundamentals by 6-13 in our benchmark area, with potentially higher overvaluation in other locations. Finally, we quantify both allocative inefficiency and distributional consequences arising from flood risk misperceptions and insurance policy reform.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

JEL-codes: D83 Q54 R30 (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations: View citations in EconPapers (39)

Downloads: (external link)
http://hdl.handle.net/10.1093/rfs/hhab122 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:rfinst:v:35:y:2022:i:8:p:3666-3709.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Review of Financial Studies is currently edited by Itay Goldstein

More articles in The Review of Financial Studies from Society for Financial Studies Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().