Association for Public Policy Analysis & Management

Panel: Natural Disaster Policy and Private Protection Behavior: Empirical Examination of the Flood Risk Management in the U.S

(Natural Resource Security, Energy and Environmental Policy)

Natural disasters cause substantial social and economic losses across the United States, and among all flooding is the most prevalent and has resulted in the largest amount of damages only second to hurricanes. Given the growing costs of weather-related disasters and ongoing climate change, how to effectively manage disaster risks is a critical question increasingly concerning both policy makers and researchers. This panel is comprised of four empirical research papers with a unifying focus on the national flood management institutions. They examine various policy tools involving ex ante disaster risk mitigation and transfers (e.g., insurance programs) as well as post-disaster relief, and their interplays with private or community-level risk perception and protection behaviors. These papers jointly provide empirical evidence on the factors shaping private risk-transfer and mitigation behaviors, and inform the current debate on flood policy reforms, particularly pertaining to the National Flood Insurance Program (NFIP). The first paper tests the “charity hazard” hypothesis by examining the implications of two largest disaster policy programs (i.e. individual housing assistance and public recovery and rebuilding assistance) on private flood insurance purchase behavior in the United States. This paper offers important insights about hidden costs of federal disaster assistance when the implicit losses due to flood insurance dropouts are also accounted for. The second paper focuses on understanding how the occurrence of drought may affect homeowners’ perception of flood risk, evidenced by their flood insurance purchase behavior. Given low take up rate for flood insurance and an evidence of myopic insurance behavior that are driven by recent events, it is of importance to understand how oscillating events could lead to risk misperception and suboptimal private adaptation. The third paper investigates performance of the voluntary Community Rating System (CRS) program of the NFIP across participating communities and main drivers for localities to not only participate in the program, but also improve program performance in terms of CRS class criteria. The CRS program is a unique program in that public sector undertakes mitigation activities and in exchange, residents of participating communities receive reduction in insurance premiums. This paper provides important contribution in understanding how the public mitigation efforts and private insurance purchase behavior can lead to resilient communities. The fourth paper empirically estimates household preferences to avoid flood risk in the presence of heterogeneous sorting in Florida. It provides important insights about how the distribution of preferences for flood risks vary across different flood risk boundaries, and what are their implications for racial and poverty distribution within these vulnerable hotspots. All the four papers in this panel are linked by a common theme related to flood disaster risk perception, national and local disaster policy and their implications for private insurance purchase behavior. They not only contribute to a better understanding of the preferences for risk avoidance, and distribution of hazard hotspots, but also provide important insights into the drivers of private self-insurance behavior.