Does governmental assistance affect private decisions to insure? An empirical analysis of flood insurance purchases

2019 by the Board of Regents of the University of Wisconsin System. In this paper, we empirically examine whether the Federal Emergency Management Agency's Public Assistance (PA) program, which targets postdisaster cleanup and infrastructure rehabilitation, affects household purchases of flood insurance. Using the fixed-effects model with instrumental variables to address the endogeneity of disaster aid, we find that increased PA grants reduce a county's flood insurance take-up rates, thereby driving down its total insurance coverage and premiums paid. Our findings provide empirical evidence on the crowding-out effect of public disaster programs, and shed light on their implicit social costs and increased federal financial exposure to natural disasters and climate change.

Does governmental assistance affect private decisions to insure? An empirical analysis of flood insurance purchases Academic Article