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Non-linear incentives, plan design, and flood mitigation: the case of the Federal Emergency Management Agency's community rating system

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  • Sammy Zahran
  • Samuel Brody
  • Wesley Highfield
  • Arnold Vedlitz

Abstract

A basic proposition of 'agency theory' is that output-based performance incentives encourage greater effort. However, studies find that incentive schemes can distort effort if rewards for performance are discrete or non-linear. The Federal Emergency Management Agency's (FEMA) Community Rating System (CRS) is a flood mitigation programme with a non-linear incentive design. Under this programme, localities are incentivised to implement a mix of 18 flood mitigation activities. Each activity is performance scored, with accumulated scores corresponding to a percent discount on flood insurance premiums for residents that hold National Flood Insurance policies. Discounts range from 0 to 45% and increase discretely in increments of 5%. With multivariate statistical and Geographic Information Systems analytic techniques, tests are made to find whether observed changes in annual CRS scores for participating localities in Florida are explained by non-linear incentives, adjusting for hydrologic conditions, flood disaster histories, socio-economic and human capital controls that can plausibly account for local mitigation activity scores over time. Results indicate that local jurisdictions are discount-seeking, with mitigation efforts partially driven by the non-linear incentive design of the CRS programme. The paper ends with recommendations to improve the operation FEMA's flood mitigation programme.

Suggested Citation

  • Sammy Zahran & Samuel Brody & Wesley Highfield & Arnold Vedlitz, 2010. "Non-linear incentives, plan design, and flood mitigation: the case of the Federal Emergency Management Agency's community rating system," Journal of Environmental Planning and Management, Taylor & Francis Journals, vol. 53(2), pages 219-239.
  • Handle: RePEc:taf:jenpmg:v:53:y:2010:i:2:p:219-239
    DOI: 10.1080/09640560903529410
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    References listed on IDEAS

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    1. Holmstrom, Bengt, 1982. "Design of incentive schemes and the new Soviet Incentive model," European Economic Review, Elsevier, vol. 17(2), pages 127-148.
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    Cited by:

    1. Abdul-Akeem Sadiq & Douglas Noonan, 2015. "Local capacity and resilience to flooding: community responsiveness to the community ratings system program incentives," 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. 78(2), pages 1413-1428, September.

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