Sorting over flood risk and implications for policy reform

Abstract

Do individuals sort across flood risk? This paper applies a boundary discontinuity design to a residential sorting model to provide novel estimates of sorting across flood risk by race, ethnicity, and income. We find clear evidence that low income and minority residents are more likely to move into high risk flood zones. We then highlight the overall and distributional implications of proposed price and information reforms to the U.S. National Flood Insurance Program. While such reforms are likely welfare increasing overall, heterogeneous behavioral responses yield significant distributive effects that also alter the composition of residents in harm's way.