SMU SOE Seminar (May 24, 2023): Flood Risk, Insurance, and Business Relocation

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ABSTRACT Flood risk poses a growing threat to economic activities and real estate in the US. Intuitively, both residential households and commercial businesses should gradually move out of flood zones, especially when those areas face increasing flood risk. However, we find a puzzling pattern that shows businesses in US grew 10% faster in certain central business districts in the past two decades when those districts were designated as flood zones. We build a spatial model that explains this puzzle: Business misplacement in response to rising flood risk is due to a free riding problem, in which flood insurance is imperfectly enforced while governments provide financial aid to uninsured properties ex post. Our model predicts lower commercial rent after an area becomes a flood zone, matching the price results we obtain from our empirical analysis. Finally, we quantify welfare losses of imperfect flood insurance enforcement using our model. Keywords: Flood Insurance, Business Relocation, Climate Risk, Flood Map, Business Growth. JEL Codes: Q54, R12, G18, G22. Click here to view the CV. Click here to view the paper.
		PRESENTER Yongheng Deng University of Wisconsin-Madison
		RESEARCH FIELDS Real Estate Finance Housing and Urban Economics
		DATE: 24 May 2023 (Wednesday)
		TIME: 4pm - 5.30pm
		VENUE: Meeting Room 5.1, Level 5 School of Economics Singapore Management University 90 Stamford Road Singapore 178903