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Valuing Mitigation: Real Estate Market Response to Hurricane Loss Reduction Measures

Author

Listed:
  • Kevin M. Simmons

    () (Department of Economics, Oklahoma City University)

  • Jamie Brown Kruse

    () (Department of Economics, Texas Tech University)

  • Douglas A. Smith

    () (Department of Civil Engineering, Texas Tech University)

Abstract

This paper explores valuation of two measures of windstorm mitigation in a Gulf Coast city. Since the home owner is not able to reduce the probability that a hurricane or tropical storm will occur at the structure's location, any voluntary mitigation intended to fortify the home is a form of self-insurance as defined by. This distinction is important because market insurance and self-insurance are substitutes and thus subject to the standard moral hazard problem. Using a unique Multiple Listing Service data set with detailed information on several hurricane mitigation features, we construct two models to test the influence of mitigation on resale price. The results of the hedonic study indicate that individuals place a positive value on a self-insurance type of mitigation.

Suggested Citation

  • Kevin M. Simmons & Jamie Brown Kruse & Douglas A. Smith, 2002. "Valuing Mitigation: Real Estate Market Response to Hurricane Loss Reduction Measures," Southern Economic Journal, Southern Economic Association, vol. 68(3), pages 660-671, January.
  • Handle: RePEc:sej:ancoec:v:68:3:y:2002:p:660-671
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    Citations

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    Cited by:

    1. Jiazhen Peng & Xiaojun Shan & Yang Gao & Yohannes Kesete & Rachel Davidson & Linda Nozick & Jamie Kruse, 2014. "Modeling the integrated roles of insurance and retrofit in managing natural disaster risk: a multi-stakeholder perspective," 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. 74(2), pages 1043-1068, November.
    2. Randy Dumm & G. Sirmans & Greg Smersh, 2011. "The Capitalization of Building Codes in House Prices," The Journal of Real Estate Finance and Economics, Springer, vol. 42(1), pages 30-50, January.
    3. Eiji Yamamura, 2014. "Impact of natural disaster on public sector corruption," Public Choice, Springer, vol. 161(3), pages 385-405, December.
    4. James M. Carson & Kathleen A. McCullough & David M. Pooser, 2013. "Deciding Whether to Invest in Mitigation Measures: Evidence From Florida," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 80(2), pages 309-327, June.
    5. Craig E. Landry & Paul Hindsley, 2011. "Valuing Beach Quality with Hedonic Property Models," Land Economics, University of Wisconsin Press, vol. 87(1), pages 92-108.
    6. John Whitehead & Adam Rose, 2009. "Estimating environmental benefits of natural hazard mitigation with data transfer: results from a benefit-cost analysis of Federal Emergency Management Agency hazard mitigation grants," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 14(7), pages 655-676, October.
    7. Kevin Simmons & Daniel Sutter, 2007. "Tornado shelters and the manufactured home parks market," 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. 43(3), pages 365-378, December.
    8. Bradley Ewing & Jamie Kruse & Yongsheng Wang, 2007. "Local housing price index analysis in wind-disaster-prone areas," 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. 40(2), pages 463-483, February.
    9. David Merrell & Kevin M. Simmons & Daniel Sutter, 2005. "The Determinants of Tornado Casualties and the Benefits of Tornado Shelters," Land Economics, University of Wisconsin Press, vol. 81(1).
    10. Dakshina Silva & Jamie Kruse & Yongsheng Wang, 2008. "Spatial dependencies in wind-related housing 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. 47(3), pages 317-330, December.
    11. Daniel R. Petrolia & Joonghyun Hwang & Craig E. Landry & Keith H. Coble, 2015. "Wind Insurance and Mitigation in the Coastal Zone," Land Economics, University of Wisconsin Press, vol. 91(2), pages 272-295.
    12. Scott Pataya & Liang Daan, 2016. "What is the Economics of Wind Hazard Mitigation?," Journal of Business Valuation and Economic Loss Analysis, De Gruyter, vol. 11(1), pages 25-29, June.

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