Speaker: Dayin Zhang
Few homeowners insure against floods unless required. We develop a model linking mortgage and insurance markets: lenders absorb uninsured losses, but disaster aid, behavioral biases, and adverse selection weaken demand, making private mandates unprofitable and leaving too many homes uninsured. Testing the model with a national repricing of flood insurance, we find premium increases lowered home prices and borrowing only where lenders mandate coverage; elsewhere, take-up was more adversely selected. Counterfactuals show expanding the mandate outperforms having GSEs price flood risk.
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