Work in Progress

Selling Out: Spatial Contagion in the Harris County Flood Control District Buyout Program Participation

With H. Allen KlaibeR

As rising sea-levels bear the potential to engulf entire coastal cities, managed retreat from coastlines will become a more common solution to mitigating flood risk. Though federal funds are available to aid municipalities in their efforts to acquire vulnerable residential properties and a variety of municipalities have provided such opportunities for homeowners, household participation in these programs is not always robust. With more than 3,000 structures acquired since 1985, one of the most successful records of implementing managed retreat belongs to the Harris County Flood Control District. To better understand the process by which households voluntarily engage in a buyout program, we use 2001-2014 property transaction data from the greater Houston area to estimate the positive spatial contagion of participation in such programs. Avoiding simultaneity induced endogeneity, we use lagged values of the social interaction variable to identify the causal impact of the participation of a neighbor in buyout program on one`s own participation decision via a duration model. Preliminary analysis suggests a process similar to that involved in the spatial contagion of strategic defaults on mortgages during the subprime financial crisis whereby the actions of one’s neighbors reduce the social stigma of one’s own action, in this case, the abandonment of one’s community (Towe and Lawley 2013). Furthermore, with the departures of one’s neighbors, the social capital of a household within a given neighborhood is reduced, eliminating a source of friction in the decision to relocate. The results of this analysis have the potential to inform more efficient designs of future buyout programs and thus reduce vulnerability to flooding. By knowing the impact on the hazard rate of participation caused by the participation of one’s neighbors, policymakers can offer the proper incentives to encourage initial adoption within a community, spurring future adoption, saving lives, and eliminating future renovation and reconstruction costs.