Flood Risk Belief Heterogeneity and Coastal Home Price Dynamics: Going Under Water? / Laura A. Bakkensen, Lint Barrage.

Format:

Book

Author/Creator:

Bakkensen, Laura A.

Contributor:

National Bureau of Economic Research.

Barrage, Lint.

Series:

Working Paper Series (National Bureau of Economic Research) no. w23854.

NBER working paper series no. w23854

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Flood Risk Belief Heterogeneity and Coastal Home Price Dynamics

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2017.

Summary:

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 the mixed empirical evidence on flood risk capitalization. Second, we implement a door-to-door survey in Rhode Island. We find significant flood risk underestimation and sorting based on flood risk beliefs and amenity values. Third, we quantify the model and estimate that coastal prices currently exceed fundamentals by around 13% in our benchmark setting, with the potential for significantly higher overvaluation in other areas. Finally, we quantify both allocative inefficiency and distributional consequences arising from flood risk misperceptions and flood insurance policy reform.

Notes:

Print version record

September 2017.