Land Economics · 2002 · 163 citations · 5 references
BusinessInsuranceReal EstateFlood Risk ManagementInsurance EconomicsProperty InsuranceFlood InsuranceFlood Risk AssessmentFlood Risk CoverageFlood Risk PolicyInsurance RiskProperty Risk AssessmentEconomic Efficiency AnalysisFlood RiskFlood Risk InsuranceHousehold Purchase DecisionsInsurance Purchase DecisionsMandatory Insurance CoverageRisk PremiumsSpecial Flood Hazard Areas
The National Flood Insurance Program, established in 1968 to mandate flood insurance for federally backed mortgages, was theorized by Krutilla (1966) to enhance flood‑plain occupancy efficiency, but its effectiveness depends on homeowners’ access to accurate flood‑risk and premium information. Survey data from Boulder, Colorado reveal a significant information market failure in the NFIP, with most respondents in special flood hazard areas reporting insufficient understanding of flood risk and insurance costs during property purchase.
<i>The National Flood Insurance Program (NFIP) was established in 1968 and requires mandatory flood insurance for property owners who have federally backed mortgages. Krutilla (1966) noted that a compulsory national flood insurance program could greatly improve the economic efficiency of flood plain occupancy in the United States. However, in order to realize the efficiency gains suggested by Krutilla, property owners must have sufficient information about flood risk and insurance premiums to make well-informed home purchase decisions. Using survey data from Boulder, Colorado, we find significant evidence of market failure in information in the NFIP program. The majority of survey respondents, all of whom live in a special flood hazard area, report they did not fully understand the degree of flood risk or the cost of insuring against this risk when negotiating the purchase of their property.</i> (JEL Q24)
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An economic approach to coping with flood damage
John V. Krutilla · Water Resources Research · 1966 · 77 citations