Non-linear incentives, plan design, and flood mitigation: the case of the Federal Emergency Management Agency's community rating system

Sammy Zahran, Samuel Brody, Wesley Highfield and Arnold Vedlitz

Journal of Environmental Planning and Management, 2010, vol. 53, issue 2, 219-239

Abstract: A basic proposition of 'agency theory' is that output-based performance incentives encourage greater effort. However, studies find that incentive schemes can distort effort if rewards for performance are discrete or non-linear. The Federal Emergency Management Agency's (FEMA) Community Rating System (CRS) is a flood mitigation programme with a non-linear incentive design. Under this programme, localities are incentivised to implement a mix of 18 flood mitigation activities. Each activity is performance scored, with accumulated scores corresponding to a percent discount on flood insurance premiums for residents that hold National Flood Insurance policies. Discounts range from 0 to 45% and increase discretely in increments of 5%. With multivariate statistical and Geographic Information Systems analytic techniques, tests are made to find whether observed changes in annual CRS scores for participating localities in Florida are explained by non-linear incentives, adjusting for hydrologic conditions, flood disaster histories, socio-economic and human capital controls that can plausibly account for local mitigation activity scores over time. Results indicate that local jurisdictions are discount-seeking, with mitigation efforts partially driven by the non-linear incentive design of the CRS programme. The paper ends with recommendations to improve the operation FEMA's flood mitigation programme.

Keywords: Florida; flood mitigation; community rating system; non-linear incentives (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (7)

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DOI: 10.1080/09640560903529410

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