Open Access

The Willingness to Pay for Flood Insurance

Noelwah R. Netusil, Carolyn Kousky, Shulav Neupane, Will Daniel and Howard Kunreuther

Article Figures & Data

  • Table 1

    Survey Respondent and Property Characteristics

    VariableAverageStandard DeviationMinimumMaximumACS Data
    Age (years)52.0815.86229735.19
    Household size2.571.391112.76
    Female0.51720.5004010.4949
    Bachelor’s degree or higher0.54490.4986010.1308
    White0.81960.3850010.6373
    Asian0.05570.2297010.1714
    Black or African American0.01060.1025010.0569
    American Indian or Alaska Native0.01330.1145010.0133
    From multiple races0.02390.1528010.0548
    From other race0.01060.1026010.0561
    Prefer not to answer0.06630.249101
    Hispanic or Latino0.04760.2132010.1639
    Income ($)72,13942,68615,000250,00047,647
    Employed full time0.53970.4991010.2964
    Year house built195828.6919032017
    Lot square footage8,3826,52746864,051
    Building square footage1,370.18552.415283,548
    Total assessed value ($)280,01272,418159,190807,250
    Euclidean distance to Johnson Creek (ft.)4,0782,42130410,948
  • Table 2

    Annual Willingness to Pay

    Annual Willingness to PayNumber of RespondentsPercentage
    $03813.62
    $1004315.41
    $150248.60
    $2503813.62
    $3503913.98
    $5504616.49
    $850145.02
    $1,250279.68
    $2,00072.51
    $3,00010.36
    More than $3,00020.72
    • Note: N = 279

  • Table 3

    Summary Statistics for Explanatory Variables

    VariableDescription and UnitsExpected SignAverageStandard DeviationCount When Variable = 1
    Objective Risk Measures
    In 100-year floodplain= 1 building footprint in 100-year floodplain
    = 0 otherwise
    +0.25090.434370
    AE zone= 1 building footprint in AE flood zone
    = 0 otherwise
    +0.02870.16728
    AH zone= 1 building footprint in AH flood zone
    = 0 otherwise
    +0.22220.416562
    In 500-year floodplain= 1 if building footprint in 500-year floodplain
    = 0 otherwise
    ?0.07170.258420
    Outside floodplain (excluded)= 1 if building footprint is outside a floodplain
    = 0 otherwise
    N/A0.67740.4683189
    Volume of expected floodingVolume of expected flooding in primary structure (1,000 ft.3)+0.23710.9751N/A
    Subjective Flood Risk and Flood Experience
    Experienced flood damage= 1 if any flood damage reported
    = 0 otherwise
    ?0.09320.291238
    Zero expected future flooding (excluded)= 1 if expected frequency of basement flooding is 0
    = 0 otherwise
    N/A0.71680.4513200
    1-2 times expected future flooding= 1 if expected frequency of basement flooding is 1-2 times
    = 0 otherwise
    +0.22580.418963
    3 or more times expected future flooding= 1 if expected frequency of basement flooding is 3 or more times
    = 0 otherwise
    +0.05730.232916
    Home’s risk much lower than neighborhood= 1 if home’s risk is much lower than neighborhood
    = 0 otherwise
    ?0.36920.4834102
    Home’s risk somewhat lower than neighborhood= 1 if home’s risk is somewhat lower than neighborhood
    = 0 otherwise
    ?0.23660.425765
    Home’s risk average for neighborhood= 1 if home’s risk is average for neighborhood
    = 0 otherwise
    ?0.19350.395854
    Home’s risk somewhat higher than neighborhood= 1 if home’s risk is somewhat higher than neighborhood
    = 0 otherwise
    +0.04660.211113
    Home’s risk much higher than neighborhood= 1 if home’s risk is much higher than neighborhood
    = 0 otherwise
    +0.01080.10333
    Don’t know home’s risk compared to neighborhood (excluded)= 1 if respondent selected “don’t know” for home’s risk
    = 0 otherwise
    N/A0.14340.351140
    Home Characteristics
    Mortgage= 1 if property has a mortgage
    = 0 otherwise
    ?0.78490.4116219
    Property has a basement and/or crawlspace= 1 if property has a basement and/or crawlspace
    = 0 otherwise
    ?0.95340.2111266
    Property’s total valueTotal assessed property value $10,000 (2017)+28.21436.8772N/A
    In FEMA map error area= 1 if property in FEMA map error area
    = 0 otherwise
    -0.14700.354741
    Distance to Johnson CreekEuclidean distance to Johnson Creek (ft.)-4,1212,458N/A
    Demographics
    IncomeMidpoint of income categories ($)+73,95243,551N/A
    Education= 1 if bachelor’s degree or higher
    = 0 otherwise
    +0.58060.4943162
    White (excluded)= 1 if White
    = 0 otherwise
    N/A0.84950.3582237
    Asian= 1 if Asian
    = 0 otherwise
    ?0.05380.226015
    Prefer not to answer= 1 if “prefer not to answer”
    = 0 otherwise
    ?0.04300.203212
    Other= 1 if Black or African American, American Indian or Alaska Native, Native Hawaiian or other Pacific Islander, some other race, or from multiple races
    = 0 otherwise
    ?0.05380.226015
    AgeYears?50.7615.25N/A
    Male (excluded)= 1 if male
    = 0 otherwise
    N/A0.45160.4985126
    Female= 1 if female
    = 0 otherwise
    ?0.52320.5004146
    Nonbinary or prefer not to answer= 1 if nonbinary or PNTA
    = 0 otherwise
    ?0.02510.15677
    Tenancy less than 1 year (excluded)= 1 if less than 1 year
    = 0 otherwise
    N/A0.09320.291226
    Tenancy of 1-3 years= 1 if tenancy of 1-3 years
    = 0 otherwise
    ?0.21510.411660
    Tenancy of 4-7 years= 1 if tenancy of 4-7 years
    = 0 otherwise
    ?0.17920.384250
    Tenancy of 8-15 years= 1 if tenancy of 8-15 years
    = 0 otherwise
    ?0.20790.406558
    Tenancy of more than 15 years= 1 if tenancy of more than 15 years
    = 0 otherwise
    ?0.30470.461185
    • Note: N = 279

  • Table 4

    Interval Tobit Regression Results

    Model 1 FloodplainModel 2 AE and AH ZonesModel 3 Volume
    In 100-year floodplain0.6897***
    (0.1975)
    AE zone1.0792***
    (0.3212)
    AH zone0.5963***
    (0.2173)
    In 500-year floodplain−0.2655
    (0.2581)
    −0.2623
    (0.2579)
    Volume of expected flooding0.1463**
    (0.0386)
    Experienced flood damage−0.1696
    (0.2272)
    −0.1546
    (0.2284)
    −0.1351
    (0.2289)
    1-2 times expected future flooding0.4426***
    (0.1377)
    0.4590***
    (0.1376)
    0.4503**
    (0.1412)
    3 or more times expected future flooding0.4300**
    (0.1804)
    0.4355**
    (0.1809)
    0.4082**
    (0.1825)
    Home’s risk much lower than neighborhood0.2195
    (0.1915)
    0.2306
    (0.1910)
    0.2773
    (0.1906)
    Home’s risk somewhat lower than neighborhood0.2953
    (0.1894)
    0.2947
    (0.1879)
    0.3065
    (0.1930)
    Home’s risk average for neighborhood0.3336
    (0.2034)
    0.3398*
    (0.2034)
    0.3664*
    (0.1974)
    Home’s risk somewhat higher than neighborhood0.3961*
    (0.2195)
    0.4052*
    (0.2211)
    0.4488*
    (0.2326)
    Home’s risk much higher than neighborhood1.2012***
    (0.4632)
    0.9923**
    (0.4205)
    1.6243**
    (0.5588)
    Mortgage0.1745
    (0.1704)
    0.1779
    (0.1701)
    0.1756
    (0.1685)
    Property has a basement and/or crawlspace−0.0957
    (0.2155)
    −0.0891
    (0.2157)
    −0.0592
    (0.2255)
    Property’s total value−0.0067
    (0.0099)
    −0.0070
    (0.0099)
    −0.0090
    (0.0107)
    In FEMA map error area−0.4284*
    (0.2326)
    −0.3138
    (0.2602)
    0.1312
    (0.1869)
    Log Euclidean distance to Johnson Creek−0.0455
    (0.0743)
    −0.0160
    (0.0825)
    −0.1208*
    (0.0710)
    Natural log of income0.3087**
    (0.1203)
    0.3107**
    (0.1206)
    0.3519**
    (0.1240)
    Education0.0648
    (0.1405)
    0.0559
    (0.1406)
    0.0225
    (0.1399)
    Asian−0.4576**
    (0.2157)
    −0.4664**
    (0.2167)
    −0.4969**
    (0.2137)
    Race is “prefer not to answer”−0.5869**
    (0.2528)
    −0.5937**
    (0.2534)
    −0.6078**
    (0.2607)
    Race is “other”0.0793
    (0.3042)
    0.0837
    (0.3068)
    0.0502
    (0.3159)
    Respondent’s age0.0025
    (0.0055)
    0.0031
    (0.0055)
    0.0026
    (0.0055)
    Female−0.0769
    (0.1229)
    −0.0779
    (0.1225)
    −0.0272
    (0.1225)
    Gender is nonbinary or prefer not to answer0.3435
    (0.4846)
    0.3764
    (0.4853)
    0.2816
    (0.5087)
    Tenancy of 1-3 years0.0844
    (0.2213)
    0.0810
    (0.2228)
    0.0082
    (0.2255)
    Tenancy of 4-7 years−0.1873
    (0.2150)
    −0.1965
    (0.2162)
    −0.2408
    (0.2206)
    Tenancy of 8-15 years−0.0665(0.2341)−0.0654(0.2348)−0.1473(0.2372)
    Tenancy of more than 15 years−0.4664*
    (0.2490)
    −0.4857*
    (0.2492)
    −0.5136**
    (0.2515)
    Constant2.8613*
    (1.5133)
    2.6140*
    (1.5511)
    2.9759**
    (1.5106)
    Observations279279279
    Log likelihood−572.21−571.66−575.64
    AIC1,202.421,203.321,207.28
    BIC1,307.731,312.261,308.96
    • Note: Robust standard errors in parentheses.

    • * p < 0.10;

    • ** p < 0.05;

    • *** p < 0.01.

  • Table 5

    Summary Statistics for Predicted Annual Willing to Pay

    Model 1 FloodplainModel 2 AE and AH ZonesModel 3 Volume
    All Respondents (N = 279)
    Mean$391.44$393.35$385.28
    Median$324.21$320.35$327.31
    Standard deviation$297.19$313.97$278.42
    Respondents in 100-Year Floodplain (N = 70)
    Mean$613.48$620.06$538.95
    Median$501.91$513.90$414.11
    Standard deviation$461.81$499.95$437.90
    Respondents Outside 100-Year Floodplain (N = 209)
    Mean$317.07$317.42$333.82
    Median$280.61$277.20$296.13
    Standard deviation$158.57$160.45$171.42