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Climate Risk and Beliefs: Evidence from New York Floodplains

Matthew Gibson (), Jamie Mullins and Alison Hill
Additional contact information
Jamie Mullins: University of Massachusetts-Amherst, https://people.umass.edu/jmullins/
Alison Hill: Analysis Group

No 2019-02, Department of Economics Working Papers from Department of Economics, Williams College

Abstract: Applying a difference-in-differences framework to a census of residential property transactions in New York City 2003-2017, we estimate the price effects of three flood risk signals: 1) the Biggert-Waters Flood Insurance Reform Act, which increased premiums; 2) Hurricane Sandy; and 3) new floodplain maps reflecting three decades of climate change. Estimates are negative for all three signals and some are large: properties included in the new floodplain after escaping flooding by Sandy experienced 18 percent price reductions. We investigate possible mechanisms, including selection of properties into the market and residential sorting. Finding no evidence for these, we develop a parsimonious theoretical model to study changes in flood beliefs. The model allows decomposition of our reduced-form estimates into the effects of insurance premium changes and belief updating. Results suggest that the new maps induced substantially larger belief changes than insurance reform.

JEL-codes: Q54 Q58 R30 G22 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-agr, nep-ene, nep-env and nep-ias
Date: 2019-03
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