Topic: The Costs of Hedging Disaster Risk and Home Prices in the Face of Climate Change
Speaker: Shan Ge, Assistant Professor of Finance, Leonard N. Stern School of Business, New York University
Time: 10:00am-11:30am, March 20
Location: 4-101
Abstract:
Climate change threatens to increase the damages of natural disasters and the cost of insuring against them. We study how the cost of hedging disaster risk changes home prices by using a 2012 law that mandated flood insurance premium increases for properties discontinuously around flood zone boundaries and based on the timing of construction. With a triple-difference design, we find that homes that experience the largest increase in premiums experience the largest decline in home values. Evidence suggests that the effect is partly driven by increases in perceived risks triggered by increases in premiums. While the effect on home prices is unrelated to current hazard risk, the estimate is three times larger for homes that are exposed to long-term sea level rise than those not exposed, suggesting that insurance pricing can accelerate the incorporation of climate risk in asset markets. Buyers of these homes also reduce the probability of taking out mortgages, as insurance is required for mortgages.
Speaker Biography:
Professor Ge's research focuses on the nexus of finance, insurance, and climate change, encompassing three distinct areas of inquiry. First, she delves into significant corporate finance issues leveraging the insurance sector as a study setting, offering robust causal inferences. Second, her research investigates the impact of insurance (e.g. health insurance and flood insurance) on both corporations and households. Third, her work sheds light on insurance companies' pivotal role as financial intermediaries, facilitating capital flows within capital markets, while enabling households to hedge risks associated with mortality, longevity, and natural disasters stemming from climate change.
Her scholarly contributions have been published in prestigious financial academic journals such as the Journal of Finance, Review of Financial Studies, and Journal of Financial Economics. Furthermore, her research has been cited by the US Senate and has received coverage in reputable news outlets, including the New York Times.
