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Hurricane risk and coastal property owner choices

Hurricane risk and coastal property owner choices Purpose – The purpose of this paper is to contrast the behavior of a US homeowner exposed to hurricane risk with government policies designed to limit hurricane losses. Owners limit these losses by selecting structural improvements or mitigation and wind and flood insurance. Design/methodology/approach – The paper uses mitigation costs, hurricane probabilities, and insurance premiums to frame rational cost‐minimizing choices for the homeowner. Findings – First, even though nationwide hurricane damage costs are large, the cost‐minimizing response for an individual property owner may be to buy no mitigation or structural improvements, no flood insurance and minimal wind insurance, as probabilities of strong hurricanes striking particular locations are extremely low. Second, additional insurance is a less costly defense than structural improvement, even under much higher insurance premiums and hurricane strike probabilities. Third, federally subsidized flood insurance may reduce the effectiveness of government programs encouraging structural mitigation. Originality/value – The last few years were underscored by the catastrophic damages of Hurricanes‐Katrina, Ike and Wilma. Enormous costs suffered by the public and private sectors could have been avoided with greater mitigation by homeowners. This paper examines the financial incentives for such mitigation. Those incentives are examined in a previously untested framework. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Disaster Resilience in the Built Environment Emerald Publishing

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References (40)

Publisher
Emerald Publishing
Copyright
Copyright © 2011 Emerald Group Publishing Limited. All rights reserved.
ISSN
1759-5908
DOI
10.1108/17595901111149123
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to contrast the behavior of a US homeowner exposed to hurricane risk with government policies designed to limit hurricane losses. Owners limit these losses by selecting structural improvements or mitigation and wind and flood insurance. Design/methodology/approach – The paper uses mitigation costs, hurricane probabilities, and insurance premiums to frame rational cost‐minimizing choices for the homeowner. Findings – First, even though nationwide hurricane damage costs are large, the cost‐minimizing response for an individual property owner may be to buy no mitigation or structural improvements, no flood insurance and minimal wind insurance, as probabilities of strong hurricanes striking particular locations are extremely low. Second, additional insurance is a less costly defense than structural improvement, even under much higher insurance premiums and hurricane strike probabilities. Third, federally subsidized flood insurance may reduce the effectiveness of government programs encouraging structural mitigation. Originality/value – The last few years were underscored by the catastrophic damages of Hurricanes‐Katrina, Ike and Wilma. Enormous costs suffered by the public and private sectors could have been avoided with greater mitigation by homeowners. This paper examines the financial incentives for such mitigation. Those incentives are examined in a previously untested framework.

Journal

International Journal of Disaster Resilience in the Built EnvironmentEmerald Publishing

Published: Jul 19, 2011

Keywords: Disaster mitigation; Hurricanes; Retrofitting; Risk reduction; Natural disasters; United States of America

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