The effect of flood mitigation spending on flood damage: Accounting for dynamic feedback

Abstract

Simple correlations and even more complicated regression-based estimators examining flood mitigation spending and flood damages counterintuitively reveal a positive relationship. This result makes accurately formulating or analyzing flood mitigation policy problematic. Using a unique longitudinal survey of U.S. counties from 1989 to 2017, this paper employs a dynamic feedback model which relaxes the “strict exogeneity” assumption in previous models, allowing flood damages to “feed back” and influence future mitigation. After accounting for feedback, the paper finds a 100% increase in mitigation spending reduces the financial consequence of flood damages by approximately 9%. The modeling approach and results can be used to perform cost-benefit analysis on public flood mitigation investment, as well as inform the efficient level of future public support.