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Flood Insurance Coverage in the Coastal Zone

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Author Info
Landry, Craig E.
Jahan-Parvar, Mohammad R.

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Abstract

We explore behavior and test theory regarding the determinants of flood insurance coverage in the coastal zone using household-level data for nine southeastern counties. We use Tobit regression models to assess the importance and magnitude of insurance cost, risk factors, community characteristics, and household attributes on flood insurance purchase for residential building structures. Overall estimates indicate price inelastic demand, though subsidized policyholders are more sensitive to price and hold greater flood insurance coverage (controlling for value of asset at risk). We find support for rational choice in the coastal zone, with flood insurance coverage positively correlated in the level of flood risk. We find evidence that coastal erosion risk effects flood insurance demand, and that community level erosion hazard mitigation projects influence flood insurance holdings, with shoreline armoring appearing to act as a substitute and beach replenishment appearing to act as a complement.

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File URL: http://mpra.ub.uni-muenchen.de/15498/
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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 15498.

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Date of creation: Nov 2008
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Handle: RePEc:pra:mprapa:15498

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Related research
Keywords: Insurance coverage; flood; hazard; coastal; erosion; Tobit model;

Find related papers by JEL classification:
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters

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References listed on IDEAS
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  1. Browne, Mark J & Hoyt, Robert E, 2000. " The Demand for Flood Insurance: Empirical Evidence," Journal of Risk and Uncertainty, Springer, vol. 20(3), pages 291-306, May. [Downloadable!] (restricted)
  2. McClelland, Gary H & Schulze, William D & Coursey, Don L, 1993. " Insurance for Low-Probability Hazards: A Bimodal Response to Unlikely Events," Journal of Risk and Uncertainty, Springer, vol. 7(1), pages 95-116, August.
  3. Luigi Guiso & Tullio Jappelli, 1998. "Background Uuncertainty and the Demand for Insurance against Insurable Risks," CSEF Working Papers 02, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy. [Downloadable!]
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  4. Amemiya, Takeshi, 1973. "Regression Analysis when the Dependent Variable is Truncated Normal," Econometrica, Econometric Society, vol. 41(6), pages 997-1016, November. [Downloadable!] (restricted)
  5. Kunreuther, Howard, 1996. "Mitigating Disaster Losses through Insurance," Journal of Risk and Uncertainty, Springer, vol. 12(2-3), pages 171-87, May.
  6. Warren Kriesel & Craig Landry, 2004. "Participation in the National Flood Insurance Program: An Empirical Analysis for Coastal Properties," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 71(3), pages 405-420. [Downloadable!] (restricted)
  7. Kunreuther, Howard & Sanderson, Warren & Vetschera, Rudolf, 1985. "A behavioral model of the adoption of protective activities," Journal of Economic Behavior & Organization, Elsevier, vol. 6(1), pages 1-15, March. [Downloadable!] (restricted)
  8. Lewis, Tracy & Nickerson, David, 1989. "Self-insurance against natural disasters," Journal of Environmental Economics and Management, Elsevier, vol. 16(3), pages 209-223, May. [Downloadable!] (restricted)
  9. William D. Nordhaus, 2006. "The Economics of Hurricanes in the United States," NBER Working Papers 12813, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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