Indiana University SPEA Edward J. Bloustein School of Planning and Public Policy University of Pennsylvania AIR American University

Panel Paper: Going Toward the Flow: Subsidizing Migration and Development Patterns in Flood Plains

Thursday, November 12, 2015 : 10:15 AM
Board Room (Hyatt Regency Miami)

*Names in bold indicate Presenter

Douglas Noonan and Akeem Sadiq, Indiana University-Purdue University Indianapolis
We analyze the effects of FEMA’s Community Ratings System (CRS), a national program for communities to voluntarily reduce flood risks and receive discounted flood insurance premiums.  Over 1,200 communities are currently participating in the program, which began in 1990.  The program presents an interesting policy case to examine because it directly provides private, capitalizable benefits to certain property owners (those in special hazard flood plains) for community-level actions.  Those actions also presumably provide benefits beyond the subsidies to the property owners as well as the broader community, but the policy design suggests that these selective incentives are important to inducing collective action to improve community flood preparedness.  To date, several studies have examined the CRS but have mostly focused on determinants of community participation and its effects on flood insurance demand.  The evidence of the effect of subsidizing community-level flood preparedness on migration and development patterns remains unexamined.  Although inducing community-level flood preparedness actions is a first-order objective of the policy, the second-order effects on economic activity like migration and development are crucial to fully assessing the net effects of the CRS.  Improving flood risk information, reducing flood risk, improving community flood resistance, subsidizing flood insurance premiums – all desired outcomes under CRS – should each affect the location and intensity of migration and development.  The preliminary results presented here are the first to shed light on the influence of CRS on where new development occurs and the resulting change in exposure of life and property to flood risk.

The analysis here takes advantage of several features of the empirical setting to robustly identify policy effects.   This is particularly important for a program like the CRS, where participation is voluntary and endogeneity may weaken the results.  First, we take advantage of natural and exogenous measures of flood risk as well as detailed historical records of local flood events and damage.  Second, we construct a panel of local communities nationwide that includes all (participating and non-participating) communities, including those that joined the program late or who adjusted the intensity of the participation during the course of the program.  Third, and perhaps most crucially, we leverage design features of the CRS program itself, which awards points for mitigation activities and discounts for surpassing point thresholds.  Exploiting the discontinuity in the tiered subsidy design helps us isolate the effect of the subsidy as opposed to other CRS activities.  Roughly speaking, this approach allows us to examine changes in migration and housing development trends across three types of communities: non-participants with high flood risks, participants just below point thresholds, and participants just above thresholds.  This helps inform the concurrent influences of preexisting background factors, induced community flood preparedness, and subsidized premiums.  Preliminary results suggest a rise in migration and development in participating communities receiving greater subsidies, and more development in comparable non-participating communities. In addition to across-community variation in development, we also examine within-community variation (i.e., tracts inside vs. outside flood plains) in responses to subsidized flood insurance.