MODELING THE DECISION TO BUY FLOOD INSURANCE: AN EMPIRICAL ANALYSIS FOR COASTAL AREAS

A perennial question about the NFIP is: how can participation be increased? An empirical analysis reveals that in coastal areas the voluntary participation rate is only nine percent and identifies important determinants of the insurance purchase decision. It suggests that insurance will not discourage undesirable risk management practices in coastal areas.Risk and Uncertainty,

Field Experiments on Anchoring of Economic Valuations

A pillar of behavioral research is the view that preferences are constructed during the value elicitation process, but it is unclear whether, and to what extent, such biases influence real market equilibria. This paper examines the “anchoring” phenomenon in the field. The first experiment produces evidence that inexperienced consumers can be anchored in the value elicitation process, yet there is little evidence that experienced agents are influenced by anchors. The second experiment finds that anchors have only transient effects on prices and quantities traded: aggregate market outcomes converge to the intersection of supply and demand after a few market periods.field experiment, anchoring, valuation, experience

EXPANDING THE NATIONAL FLOOD INSURANCE PROGRAM TO COVER COASTAL EROSION DAMAGE

The National Flood Insurance Program does not currently cover damage strictly attributable to coastal erosion. This paper uses the results of a nationwide survey of coastal property owners to estimate the demand for such insurance. We find that there is significant demand at prices in the range of current flood insurance premiums. Demand is influenced in the hypothesized way by increased measures of erosion risk as well as by insurance price and income.Land Economics/Use, Risk and Uncertainty,

COSTS OF COASTAL HAZARDS: EVIDENCE FROM THE PROPERTY MARKET

A hedonic price model suggests that flooding and erosion hazards, and the actions taken against them, are major determinants of property values in American coastal areas. A zoning ordnance against new construction within the 60-year erosion hazard area would increase property values and perhaps conserve the coastal ecosystem.Environmental Economics and Policy, Land Economics/Use,

AN ECONOMIC EVALUATION OF BEACH EROSION MANAGEMENT ALTERNATIVES

This paper examines the relative economic efficiency of three distinct beach erosion management policies — beach nourishment with shoreline armoring, beach nourishment without armoring, and shoreline retreat. The analysis focuses on (i) the recreational benefits of beaches, (ii) the property value effects of beach management, and (iii) the costs associated with the three management scenarios. Assuming the removal of shoreline armoring improves overall beach quality, beach nourishment with shoreline armoring is the least desirable of the three alternatives. The countervailing property losses under a retreat strategy are of the same order of magnitude as the foregone management costs when the beneficial effects of retreat — higher values of housing services for those houses not lost to erosion — are considered. The relative desirability of these alternative strategies depends upon the realized erosion rate and how management costs change over time.Resource /Energy Economics and Policy,

Some Consumer Surplus Estimates for North Carolina Beaches

We estimate consumer surplus of a beach day using the single-site travel cost method. Onsite visitation data for seven North Carolina beaches were collected between July and November of 2003. Two pooled count data models, corrected for endogenous stratification and truncation, are estimated to account for bias stemming from onsite sampling. One model pertains to beach visitors that make single day trips to the beach, while the other is for visitors that stay onsite overnight. In each model, we allow for heterogeneity across sites through intercept-shifting and demand slope-shifting dummy variables. Depending upon the site, the estimated net benefits of a day at a beach in North Carolina range between $11 and$80 for those users making day trips and between $11 and$41 for those users that stay onsite overnight. These estimates are of the same order of magnitude as the results from earlier studies using travel cost methods but are considerably larger than the previous findings based upon stated preference methods.travel cost, consumer surplus, beach access, Resource /Energy Economics and Policy, D12, D63, H31, Q26,

Wind Turbines and Coastal Recreation Demand

We examine the impact of coastal wind turbines on coastal tourism and recreation for residents of the northern CAMA counties in North Carolina. A combination of telephone and web survey data are used to assess the impact of coastal wind farms on trip behavior and site choice. Most of the respondents to our telephone survey claim to support offshore wind energy development, and independent survey data suggest that the observed levels of support may be indicative of the broader population in this region. Overall, we find very little impact of coastal wind turbines on aggregate recreational visitation; loss in consumer surplus associated with wide spread wind development in the coastal zone is insignificant at $17 (or about 1.5$55 per household. On average, we find no evidence of aversion to wind farms 4 miles out in the ocean, or for wind farms located in coastal estuaries. For all wind farm scenarios, we find evidence of preference heterogeneity– some respondents find this appealing while others find it aversive. Key Words: Recreation demand, tourism, renewable energy

Going Home: Evacuation-Migration Decisions of Hurricane Katrina Survivors

In the wake of Hurricane Katrina, many evacuees from the Gulf region began the difficult process of deciding whether to rebuild or restart elsewhere. We examine pre-Katrina Gulf residents’ decision to return to the post-disaster Gulf region—which we call the “return migration” decision. We estimate two separate return migration models, first utilizing data from a mail survey of individuals in the affected region and then focusing on self-administered questionnaires of evacuees in Houston. Our results indicate that return migration can be affected by household income; age; education level; employment, marital and home ownership status; but the results depend upon the population under consideration. We find no impact of “connection to place” on the return migration decision. While the impact of income is relatively small, we find that the real wage differential between home and host region influences the likelihood of return. Larger implicit costs, in terms of foregone wages for returning, induce a lower likelihood of return. Exploiting this difference at the individual level, we are able to produce estimates of willingness to pay to return home. Average WTP to return home for a sample of relatively poor households is estimated at $1.94 per hour or$3,954 per year.

Flood Insurance Coverage in Dare County: Before and After Floyd

Dr. Landry started with an overview of how the flood insurance program works. Flooding is a catastrophe risk since flooding events cause multiple losses that are correlated across space; and given the rarity of flooding events, reliable information may not be available to predict likelihood of loss. Government provision for disaster relief can cause a “charity hazard� in that people may opt not to insure. As such, private companies have traditionally exhibited little interest in providing insurance against flooding loss, and the government has stepped in with a public option: the National Flood Insurance Program (NFIP). The program started by creating flood inundation maps and offering subsidized insurance, but most people did not buy it. Then the government made flood insurance mandatory if you had a federally backed mortgage. This has increased participation in NFIP. This study compared 1998 and 2008 flood insurance in Dare County, NC, a vulnerable area. In 1998 many properties did not have flood insurance, but in 2008 more did. There are also more mortgaged properties than ten years ago, and these have higher assessed values and higher amounts covered. Demand for insurance is not responsive to price, so raising or lowering flood insurance prices is not likely to have a large effect on coverage. Since people are required to purchase insurance if they have a mortgage, they don’t have the option not to buy. Demand for flood insurance also increases with income and education level. Insurance coverage is greater for higher value buildings and riskier areas

Riders on the Storm: Hurricane Risk and Coastal Insurance and Mitigation Decisions

This paper utilizes cross-sectional, household-level, survey data combined with data on subjective risk perceptions and experimentally derived risk preferences to analyze the decision to insure against hurricane losses. Our sample encompasses 670 individuals in five states of the United States Gulf Coast Region (Texas, Louisiana, Mississippi, Alabama, and Florida). This study represents one of the few papers to examine wind insurance empirically and the only study to examine flood insurance, wind insurance, and mitigation behavior contemporaneously. Because these decisions are closely related, we employ a mixed-process regression, which allows for correlated error terms across a random-effects bivariate probit model (flood/wind insurance) and a Poisson Log-Normal count model (mitigation). Results indicate positive and statistically significant correlations between the error terms of the insurance and mitigation models but no significant correlation between the error terms of the two insurance models, conditioned on the covariates. We find evidence that risk perceptions and other household factors have some influence on storm risk management, but the strongest effects tend to be related to mandatory insurance requirements associated with location in high-hazard areas