Thursday, May 5, 2011

Weathering the Storm: Measuring Household Willingness-to-Pay for Risk-Reduction in Post-Katrina New Orleans
Abstract: The city of New Orleans suffered extensive damage as a result of Hurricane Katrina. Katrina overwhelmed the natural and built environment, inundating the city. As rebuilding proceeds, decisions on investment in protective measures will include the choice of lines of defense and the storm severity that design criteria should meet. An exhaustive list of protective measures has been studied in planning documents such as the Louisiana Coastal Protection and Restoration Technical Report (2009), with public comment solicited in town hall meetings. In this study we employ a different approach to examine public sentiment towards the selection and investment in protective measures. Our study utilizes a stated choice experiment with a stratified sample to investigate individuals’ willingness-to-pay for rebuilding New Orleans’ man-made storm defenses, restoring natural storm protection, and improving evacuation options through a modernized transportation system. We target residents of the New Orleans metropolitan area as well as other US citizens. Our results indicate that individuals are willing-to-pay for increased storm protection for New Orleans, but the allocation of these resources differs among residents of the New Orleans metro area and other US citizens.
Results suggest that levee flood protection designed to withstand a category 5 storm is the most salient rebuilding feature. New Orleans metro area residents are willing to pay (WTP) $301 per household for category 5 levee protection, while the average U.S. household is willing to pay more, an estimated $509. We speculate that this difference could reflect higher average income for the U.S. population relative to New Orleans residents, assuming flood protection is a normal good. Results of the combined model
indicate an average willingness-to-pay (WTP) of $449 per U.S. household for upgrading New Orleans levee system to withstand a Category 5 storm.

Surprisingly, WTP for coastal restoration was not statistically significant for the New Orleans or U.S. samples, but the combined model indicates an overall average economic value of $103 per household. We find evidence of significant variability in the utility attributable to coastal restoration across the U.S. and combined samples. A latent class model reveals that individuals that view coastal restoration as an important part of rebuilding New Orleans and have higher income are willing to pay $214 for coastal restoration, while those that do not see coastal restoration as important and have lower income are not willing to pay.
New Orleans metro area residents are willing to pay an estimated $137 per household for modernized transportation in the New Orleans metro area, while the average U.S. household is not willing to pay for this. Again, the latent class model reveals some differences in economic value across groups, with higher income U.S. households that view coastal restoration as important harboring a negative WTP for improvements in transportation. We speculate that this reflects a concern that improved infrastructure will encourage additional development in hazard prone areas like New Orleans. Nonetheless, results of the combined model indicate an average WTP of $103 per U.S. household for modernizing New Orleans’ transportation infrastructure.

by Craig Landry 1, Paul Hindsley 2, Okmyung Bin 1, Jamie B. Kruse 1, John C. Whitehead  3 and Kenneth Wilson
1. East Carolina University - Department of Economics
2. Eckerd College
3. Appalachian State University - Department of Economics
Southern Economic Journal via Southern Economic Association
Volume 77, Issue 4; 2011; Pages 991-1013

Keywords: storm surge mitigation, conjoint analysis, willingness to pay, Hurricane Katrina, flood control, stated choice, rebuilding New Orleans, recovery

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