Going Underwater? Flood Risk Belief Heterogeneity and Coastal Home Price Dynamics
AffiliationUniversity of Arizona
MetadataShow full item record
PublisherOxford University Press (OUP)
CitationBakkensen, L. A., & Barrage, L. (2022). Going Underwater? Flood Risk Belief Heterogeneity and Coastal Home Price Dynamics. Review of Financial Studies, 35(8), 3666–3709.
JournalReview of Financial Studies
Rights© The Author(s) 2021. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved.
Collection InformationThis item from the UA Faculty Publications collection is made available by the University of Arizona with support from the University of Arizona Libraries. If you have questions, please contact us at firstname.lastname@example.org.
AbstractHow do climate risk beliefs affect coastal housing markets? This paper provides theoretical and empirical evidence. First, we build a dynamic housing market model and show that belief heterogeneity can reconcile prior mixed evidence on flood risk capitalization. Second, we implement a door-To-door survey in Rhode Island, finding significant flood risk underestimation and sorting based on risk perceptions and amenity values. Third, we estimate that coastal prices exceed fundamentals by 6\%-13\% in our benchmark area, with potentially higher overvaluation in other locations. Finally, we quantify both allocative inefficiency and distributional consequences arising from flood risk misperceptions and insurance policy reform.
Note24 month embargo; published: 10 November 2021
VersionFinal accepted manuscript