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IZA Discussion Paper No. 13553
July 2020
Climate Risk and Beliefs in New York Floodplains

published as 'Climate risk and beliefs in New York floodplains' in: Journal of the Association of Environmental and Resource Economists, 2020, 7 (6), 1069-1111.

Applying a difference-in-differences framework to a census of residential property transactions in New York City 2003-2017, we estimate the price effects of three flood risk signals: 1) the Biggert-Waters Flood Insurance Reform Act, which increased premiums; 2) Hurricane Sandy; and 3) new floodplain maps reflecting three decades of climate change. Estimates are negative for all three signals and some are large: properties included in the new floodplain after escaping flooding by Sandy experienced 11 percent price reductions. We investigate possible mechanisms, including selection of properties into the market and residential sorting. Finding no evidence for these, we develop a parsimonious theoretical model that allows decomposition of our reduced-form estimates into the effects of insurance premium changes and belief updating. Results suggest the new maps induced belief changes comparable to those from insurance reform.

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Mark Fallak
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+352 585-855-526
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Olga Nottmeyer
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+352 585-855-501
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Christina Gathmann
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Das IZA@LISER-Netzwerk ist eine weltweite Gemeinschaft für exzellente Forschung in der Arbeitsmarktökonomie und angrenzenden Fachgebieten. Nach dem Wechsel von Bonn wird das Netzwerk nun am Luxembourg Institute of Socio-Economic Research (LISER) koordiniert.

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