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

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  • 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
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