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Does the National Flood Insurance Program Have Redistributional Effects?

Author

Listed:
  • Bin Okmyung
  • Bishop John

    (Department of Economics, East Carolina University, Brewster A-427, Greenville, NC 27858-4353, USA)

  • Kousky Carolyn

    (Risk Management and Decision Processes Center, Wharton School, University of Pennsylvania, Philadelphia, PA 19104, USA)

Abstract

This study examines possible redistributional effects of the National Flood Insurance Program (NFIP), using a nationwide database of flood insurance policies and claims between 2001 and 2013 from the Federal Emergency Management Agency. Applying methods from the tax and transfer progressivity literature, we use the departure from per capita income proportionality at the zip code level as our measure of progressivity. Our findings indicate that premiums as a percentage of coverage purchased are regressive: premium shares are larger than income shares for lower-income zip codes. Payouts, however, also as a percentage of coverage purchased, are progressive, meaning lower-income zip codes receive a larger portion of claims paid. Overall net premiums (premiums – payouts) divided by coverage are also regressive. Our findings are driven by certain aspects of the current rate structure of the NFIP, as well as how income is related to risk. We discuss potential policies to provide assistance to lower-income households in purchasing flood insurance.

Suggested Citation

  • Bin Okmyung & Bishop John & Kousky Carolyn, 2017. "Does the National Flood Insurance Program Have Redistributional Effects?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 17(4), pages 1-11, October.
    • Handle: RePEc:bpj:bejeap:v:17:y:2017:i:4:p:11:n:8
    DOI: 10.1515/bejeap-2016-0321
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    References listed on IDEAS

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    1. Kousky, Carolyn & Shabman, Leonard, 2014. "Pricing Flood Insurance: How and Why the NFIP Differs from a Private Insurance Company," RFF Working Paper Series dp-14-37, Resources for the Future.
    2. Owen O'Donnell & Eddy van Doorslaer & Adam Wagstaff & Magnus Lindelow, 2008. "Analyzing Health Equity Using Household Survey Data : A Guide to Techniques and Their Implementation," World Bank Publications - Books, The World Bank Group, number 6896, December.
    3. Kakwani, Nanok C, 1977. "Measurement of Tax Progressivity: An International Comparison," Economic Journal, Royal Economic Society, vol. 87(345), pages 71-80, March.
    4. 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, September.
    5. Lerman, Robert I. & Yitzhaki, Shlomo, 1989. "Improving the accuracy of estimates of Gini coefficients," Journal of Econometrics, Elsevier, vol. 42(1), pages 43-47, September.
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    Citations

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    Cited by:

    1. Matthew E. Kahn & V. Kerry Smith, 2017. "The Affordability Goal and Prices in the National Flood Insurance Program," NBER Working Papers 24120, National Bureau of Economic Research, Inc.
    2. Lucas Cain & Danae Hernandez-Cortes & Christopher Timmins & Paige Weber, 2023. "Recent Findings and Methodologies in Economics Research in Environmental Justice," CESifo Working Paper Series 10283, CESifo.
    3. V. Kerry Smith & Ben Whitmore, 2019. "Amenities, Risk, and Flood Insurance Reform," NBER Working Papers 25580, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    Gini index; NFIP; redistributive effect; departure from proportionality;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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