Public-private flood management: Who should pay and when?

We provide a theoretical and empirical analysis of an efficient sharing of public and private flood-risk mitigation. Our analysis examines how individuals in a floodplain can best protect their property, given the interdependence between the public offering of structural measures and a private offering of insurance. A key theoretical finding is a separation of the risk space: under a given damage threshold, the public sector mitigates all risk, while above the threshold, the private sector offers insurance. We estimate this theory based on the Lake Champlain and Richelieu River data. We show how a public and private mix increases welfare gains and reduces overall spending on risk mitigation measures.