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Efficient Adaptation to Flood Risk

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  • Winston P. Hovekamp
  • Katherine R. H. Wagner

Abstract

This paper studies whether private adaptation to flood risk is economically efficient. We estimate the return to elevating houses, one of the most significant private defensive investments against flooding, using two decades of microdata on the universe of houses and flood damages in high-risk flood zones in the Atlantic and Gulf Coast United States. We find that undertaking adaptation is socially optimal in the highest-risk areas over a house's lifetime but that individual homeowners may underinvest in flood protection because the benefits do not accrue over their average tenure. We identify conditions under which adaptation yields the highest returns.

Suggested Citation

  • Winston P. Hovekamp & Katherine R. H. Wagner, 2023. "Efficient Adaptation to Flood Risk," AEA Papers and Proceedings, American Economic Association, vol. 113, pages 304-309, May.
    • Handle: RePEc:aea:apandp:v:113:y:2023:p:304-09
    DOI: 10.1257/pandp.20231103
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    References listed on IDEAS

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    1. Charles A. Taylor & Hannah Druckenmiller, 2022. "Wetlands, Flooding, and the Clean Water Act," American Economic Review, American Economic Association, vol. 112(4), pages 1334-1363, April.
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    More about this item

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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