Valuing Environmental Risk Information: Evidence from Flood Insurance Rate Map Revisions

Abstract:

What is the value of flood risk information? This paper answers this question with an empirical model of sorting across flood risk. We first apply a boundary discontinuity design to a residential sorting model to provide novel estimates of sorting across flood risk by race, ethnicity, and income. We find clear evidence that low income and minority residents are more likely to move into high risk flood zones. We then highlight the overall and distributional implications of proposed price and information reforms to the U.S. National Flood Insurance Program. With respect to flood map revisions, we find that flood map improvements provide important information for individuals to make location choice decisions and that the benefits of revisions to flood maps in our case study of South Florida exceeded costs by a ratio of at least two.