Learning from Extreme Events: Risk Perceptions after the Flood

Carolyn Kousky

Abstract

This paper examines whether a severe flood causes homeowners to update their assessment of flood risk as seen in a change in the price of floodplain property. I use data on all single-family, residential property sales in St. Louis County, Missouri, between 1979 and 2006 in a repeat-sales model and a property fixed-effects model. After the 1993 flood on the Missouri and Mississippi rivers, property prices in 100-year floodplains did not change significantly, but prices in 500-year floodplains declined by between 2% and 5%. All property prices in municipalities located on the rivers fell postflood by 6% to 10%. (JEL Q51, Q54)