Does the National Flood Insurance Program Drive Migration to Higher Risk Areas?

Abstract

Despite the large costs of covering flood losses, little is known about whether flood insurance availability affects the decision to live and stay in more flood-prone areas. In this paper, we test whether subsidized flood insurance alters residency choices by exploiting the within- and across-county variation in various programs the federal government implemented to encourage flood-prone areas to join the National Flood Insurance Program (NFIP). We find that the NFIP had an overall positive effect on the population of communities enrolling into the program, but a significantly larger impact on relatively more flood-prone locations — causing an additional 5 percent increase in population per one standard deviation increase in flood risk. Our findings highlight the potential for nationally subsidized flood insurance to contribute to flood damages by altering incentives to reside in risky areas.