In this week’s episode, host Kristin Hayes talks with Penny Liao, a scholar of behavioral and market responses to environmental risk, who joined Resources for the Future as a fellow earlier this month. Liao elaborates on a new working paper she coauthored about how home equity shapes a household’s decision to purchase flood insurance. In the end, Liao finds that homeowners with more home equity are especially likely to purchase flood insurance because they do not want to default on their mortgage, while households with highly leveraged mortgages have less incentive to insure against flood risks.

References and recommendations:

“What’s at Stake? Understanding the Role of Home Equity in Flood Insurance Demand” by Penny Liao and Philip Mulder; https://www.rff.org/publications/working-papers/whats-at-stake-understanding-the-role-of-home-equity-in-flood-insurance-demand/

“The Tragedy of the Commons” by Garrett Hardin; https://science.sciencemag.org/content/162/3859/1243

“The Problem of Social Cost” by Ronald Coase; https://link.springer.com/chapter/10.1057/9780230523210_6

“Bewilderment” by Richard Powers; https://www.penguinrandomhouse.com/books/688002/bewilderment-by-richard-powers/

“The Overstory” by Richard Powers; http://www.richardpowers.net/the-overstory/