Mythili Vinnakota 

Levees: Infrastructure and Insurance as Adaptation to Flood Risk (joint with Anna Ziff)

This paper considers the interaction of two key flood policy instruments: levees and flood insurance. Levees are critical infrastructure that reduce expected flood damage in a protected area. Flood insurance allows households to smooth consumption in the event of flood damage. When a levee is constructed, and later accredited by FEMA, it serves as a bundled shock to households, altering inherent flood risk, flood insurance prices, and insurance mandate requirements. We ask: how does flood insurance demand change in response to levee provision, and to what extent do each of these shocks affect demand?

Using data from the National Levee Database, levee accreditation documentation, and FEMA data flood insurance data, we leverage variation in levee construction and accreditation timing within two event study regressions. Construction timing allows us to examine insurance take-up as a result of decreased flood risk, while accreditation causes competing changes in insurance prices and mandate requirements. We supplement our results with an economic framework elucidating the mechanisms that drive insurance demand changes across the various points in the levee timeline.

Thomas Bourany

The Inequality of Climate Change and Optimal Energy Policy

Climate change disproportionately affects developing economies while hurting relatively less the higher-income countries responsible for a large share of greenhouse gas emissions. In this context, what is the optimal policy design for energy taxation when there is inequality in impacts and levels of development? Through the lens of an Integrated Assessment Model with heterogeneous countries, I characterize the Social Cost of Carbon (SCC) and the second-best Ramsey policy when lump-sum transfers across countries are not allowed. In contrast to the standard representative country model, both the level and the distribution of optimal carbon taxes change. In particular, the carbon tax is higher for low-marginal utility, and thus higher-income countries. This qualitative finding is general and does not depend on the market structure or the energy market’s characteristics. I propose a new numerical method relying on the sequential formulation to simulate the model globally, solve for optimal policy and potentially handle aggregate uncertainty in this heterogeneous agents model