Panel Paper: The Impact of Post-Katrina Rebuilding Grants On the Resettlement Choices of New Orleans Homeowners

Thursday, November 7, 2013 : 12:30 PM
Mayfair Court (Westin Georgetown)

*Names in bold indicate Presenter

Jesse Gregory, University of Wisconsin, Madison
Following Hurricane Katrina, the Louisiana Road Home program provided cash grants directly to individual homeowners to offset repair costs and to encourage rebuilding. I develop a dynamic discrete choice model of New Orleans homeowners’ post-Katrina choices regarding residential locations, home repairs, home sales, and amounts to borrow or save, and I derive and implement a maximum likelihood estimator for the model’s structural parameters. Using simulations I find that the Road Home program significantly increased the fraction of homes rebuilt within four years of Katrina, mostly by relaxing financing constraints for borrowing constrained households who would have strongly preferred to rebuild even in the absence of a subsidy if the associated costs could have been spread out over time. I find that location preferences are highly heterogeneous, and most households are far enough from the margin with respect to their preferred location that even large location subsidies induce few households to change locations. These findings suggest that disaster-related subsidies to dangerous locations generate substantially smaller economic distortions than would be predicted by spatial equilibrium models with homogeneous agents.

Full Paper: