Does Climate Change Adaptation Matter? Evidence from the City on the Water

Matteo Benetton, Simone Emiliozzi, Elisa Guglielminetti, Michele Loberto and Alessandro Mistretta

No 19706, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper leverages the unexpected successful activation of a sea wall built to protect Venice from rising tides to estimate the capitalization into property values of public investment in resilience infrastructure. Using a difference-in-differences hedonic approach with high-frequency microdata on residential and commercial properties, we show that properties above the sea wall activation threshold experience a permanent reduction in flood risk and expected damages, reflected in higher prices. To account for city-wide effects and potential ex-post government bailouts, we analyze the effect of the second-largest flood in Venice centuries-long history on properties prices relative to the mainland as well as data on government claims matched with property elevations. Our findings indicate that capitalized benefits and projected government savings cover approximately 52% (101%) of the sea wall costs in a status-quo (sea-level-rise) scenario. Lastly, we calculate a break-even discount rate of 1.1%, which increases to to 2.5% under sea-level-rise projections.

Keywords: Housing; Adaptation; Infrastructure (search for similar items in EconPapers)
JEL-codes: H54 O18 Q54 R21 R38 (search for similar items in EconPapers)
Date: 2024-11
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