Can Removing Development Subsidies Promote Adaptation?

As natural disasters grow in frequency and intensity under climate change, limiting populations and properties in harm’s way will be one important facet of adaptation. This study focuses on one approach to discouraging development in risky areas—eliminating implicit public incentives for development, such as infrastructure investments, disaster assistance, and subsidized federal flood insurance. We examine the Coastal Barrier Resources Act of 1982, which eliminated federal incentives in designated areas along the Atlantic and Gulf coasts known as the Coastal Barrier Resources System (CBRS). We estimate the causal effect of CBRS designations by identifying plausible counterfactual areas using novel machine learning and matching techniques. Our results show that CBRS designations lower development density by 85 percent inside the designated areas but increase development in neighboring areas by 20 percent. We also show that the program capitalizes spillover benefits from natural amenities and flood protection services into property values in surrounding neighborhoods. We find that local property tax revenues are approximately unchanged. Finally, we present new evidence that the CBRS is associated with demographic change. These findings inform ongoing debates regarding cost-effective public policies to prevent over-development in risky areas.