IDEAS home Printed from https://ideas.repec.org/a/eee/ecolec/v117y2015icp153-161.html
   My bibliography  Save this article

What drives households to buy flood insurance? New evidence from Georgia

Author

Listed:
  • Atreya, Ajita
  • Ferreira, Susana
  • Michel-Kerjan, Erwann

Abstract

Benefiting from access to detailed data on the federally run National Flood Insurance Program for the entire state of Georgia, USA, we analyze residential flood insurance purchasing behavior in that state over more than three decades (1978–2010). The demand for flood insurance on an extensive margin, based on take-up rates, is found to be relatively price inelastic. Aligned with the behavioral economics literature, recent flood events temporarily increase purchases, but this effect fades after 3years. We also find that the proportion of developed area in floodplains has a significant positive impact on insurance take-up rates. Contrary to what is often assumed, we do not find evidence that insurance purchase and mitigation efforts are substitutes. Educated individuals, individuals over the age of 45, and African-Americans are, all else equal, more likely to purchase flood insurance.

Suggested Citation

  • Atreya, Ajita & Ferreira, Susana & Michel-Kerjan, Erwann, 2015. "What drives households to buy flood insurance? New evidence from Georgia," Ecological Economics, Elsevier, vol. 117(C), pages 153-161.
  • Handle: RePEc:eee:ecolec:v:117:y:2015:i:c:p:153-161
    DOI: 10.1016/j.ecolecon.2015.06.024
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0921800915002876
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Drukker, David M., 2003. "Testing for serial correlation in linear panel-data models," Stata Journal, StataCorp LP, vol. 3(2), pages 1-10.
    2. Ajita Atreya & Susana Ferreira & Warren Kriesel, 2013. "Forgetting the Flood? An Analysis of the Flood Risk Discount over Time," Land Economics, University of Wisconsin Press, vol. 89(4), pages 577-596.
    3. James Chivers & Nicholas E. Flores, 2002. "Market Failure in Information: The National Flood Insurance Program," Land Economics, University of Wisconsin Press, vol. 78(4), pages 515-521.
    4. Rachel Croson & James Sundali, 2005. "The Gambler’s Fallacy and the Hot Hand: Empirical Data from Casinos," Journal of Risk and Uncertainty, Springer, vol. 30(3), pages 195-209, May.
    5. Botzen, W.J.W. & Aerts, J.C.J.H. & van den Bergh, J.C.J.M., 2009. "Willingness of homeowners to mitigate climate risk through insurance," Ecological Economics, Elsevier, vol. 68(8-9), pages 2265-2277, June.
    6. Craig E. Landry & Mohammad R. Jahan‐Parvar, 2011. "Flood Insurance Coverage in the Coastal Zone," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 78(2), pages 361-388, June.
    7. 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.
    8. Jared Carbone & Daniel Hallstrom & V. Smith, 2006. "Can Natural Experiments Measure Behavioral Responses to Environmental Risks?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 33(3), pages 273-297, March.
    9. Zahran, Sammy & Weiler, Stephan & Brody, Samuel D. & Lindell, Michael K. & Highfield, Wesley E., 2009. "Modeling national flood insurance policy holding at the county scale in Florida, 1999-2005," Ecological Economics, Elsevier, vol. 68(10), pages 2627-2636, August.
    10. Marjorie Flavin & Takashi Yamashita, 2002. "Owner-Occupied Housing and the Composition of the Household Portfolio," American Economic Review, American Economic Association, vol. 92(1), pages 345-362, March.
    11. 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.
    12. Daniel R. Petrolia & Craig E. Landry & Keith H. Coble, 2013. "Risk Preferences, Risk Perceptions, and Flood Insurance," Land Economics, University of Wisconsin Press, vol. 89(2), pages 227-245.
    13. Botzen, W.J.W. & van den Bergh, J.C.J.M., 2012. "Risk attitudes to low-probability climate change risks: WTP for flood insurance," Journal of Economic Behavior & Organization, Elsevier, vol. 82(1), pages 151-166.
    14. Erwann O. Michel‐Kerjan & Carolyn Kousky, 2010. "Come Rain or Shine: Evidence on Flood Insurance Purchases in Florida," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 77(2), pages 369-397, June.
    15. Bin, Okmyung & Bishop, John A. & Kousky, Carolyn, 2011. "Redistributional Effects of the National Flood Insurance Program," Discussion Papers dp-11-14, Resources For the Future.
    16. Jaren C. Pope, 2008. "Do Seller Disclosures Affect Property Values? Buyer Information and the Hedonic Model," Land Economics, University of Wisconsin Press, vol. 84(4), pages 551-572.
    17. Austin Troy & Jeff Romm, 2004. "Assessing the price effects of flood hazard disclosure under the California natural hazard disclosure law (AB 1195)," Journal of Environmental Planning and Management, Taylor & Francis Journals, vol. 47(1), pages 137-162.
    18. Ehrlich, Isaac & Becker, Gary S, 1972. "Market Insurance, Self-Insurance, and Self-Protection," Journal of Political Economy, University of Chicago Press, vol. 80(4), pages 623-648, July-Aug..
    19. Amy Finkelstein & Kathleen McGarry, 2006. "Multiple Dimensions of Private Information: Evidence from the Long-Term Care Insurance Market," American Economic Review, American Economic Association, vol. 96(4), pages 938-958, September.
    20. Bin, Okmyung & Landry, Craig E., 2013. "Changes in implicit flood risk premiums: Empirical evidence from the housing market," Journal of Environmental Economics and Management, Elsevier, vol. 65(3), pages 361-376.
    21. Erwann O. Michel-Kerjan, 2010. "Catastrophe Economics: The National Flood Insurance Program," Journal of Economic Perspectives, American Economic Association, vol. 24(4), pages 165-186, Fall.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Andor, Mark A. & Osberghaus, Daniel & Simora, Michael, 2020. "Natural Disasters and Governmental Aid: Is there a Charity Hazard?," Ecological Economics, Elsevier, vol. 169(C).
    2. Carolyn Kousky & Erwann Michel-Kerjan, 2017. "Examining Flood Insurance Claims in the United States: Six Key Findings," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 84(3), pages 819-850, September.
    3. Andrew Royal, 2017. "Dynamics in risk taking with a low-probability hazard," Journal of Risk and Uncertainty, Springer, vol. 55(1), pages 41-69, August.
    4. Shinichi Kamiya & Noriyoshi Yanase, 2019. "Learning from extreme catastrophes," Journal of Risk and Uncertainty, Springer, vol. 59(1), pages 85-124, August.
    5. Amanda Savitt, 2017. "Insurance as a tool for hazard risk management? An evaluation of the literature," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 86(2), pages 583-599, March.
    6. Kousky, Carolyn & Michel-Kerjan, Erwann O. & Raschky, Paul A., 2018. "Does federal disaster assistance crowd out flood insurance?," Journal of Environmental Economics and Management, Elsevier, vol. 87(C), pages 150-164.
    7. Singh, Ruchi, 2019. "Seismic risk and house prices: Evidence from earthquake fault zoning," Regional Science and Urban Economics, Elsevier, vol. 75(C), pages 187-209.
    8. Arnaud Reynaud & Manh-Hung Nguyen & Cécile Aubert, 2018. "Is there a demand for flood insurance in Vietnam? Results from a choice experiment," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 20(3), pages 593-617, July.
    9. Dong Wang & Rachel A. Davidson & Joseph E. Trainor & Linda K. Nozick & Jamie Kruse, 2017. "Homeowner purchase of insurance for hurricane-induced wind and flood damage," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 88(1), pages 221-245, August.

    More about this item

    Keywords

    Floods; Disaster insurance; NFIP; Race; Georgia;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecolec:v:117:y:2015:i:c:p:153-161. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/ecolecon .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.