Reducing social pressure in spatially coordinated voluntary home buyout programs using a connected bidding mechanism
Date
2024
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Publisher
University of Delaware
Abstract
Coastal and non-coastal homeowners face an increasing number of challenges related to nuisance flooding events due to sea level rise and high precipitation events. Homeowners exposed to flood risk have options aiming to protect (by building preventative structures such as levees or beach nourishment), accommodate (by elevating structures or providing home flood prevention), or to participate in managed retreat (where homes are bought by the government and converted to green space in perpetuity). Managed retreat in the form of voluntary buyouts can be a long-term adaptation strategy that allows individuals to purposely relocate without the stress and expenses of being stuck in areas of repeated and severe flooding while trying to sell their homes on their own. A challenge of current voluntary buyout programs, the majority of which are partly funded by the Federal Emergency Management Agency (FEMA), ignores spatial dependencies in both homeowner welfare (as many homeowners suffer loss of community when their neighbors move away) and the potential local benefits from creating large, connected open spaces (that serve as flood buffers and reduce infrastructure and cost of utilities to the area). One option that has been used in the land conservation context as well as in a small number of cases related to coastal buyouts uses a financial incentive on top of a home’s fair market value (FMV) to increase acceptance rates (Dineva et al. 2023). However, this can create pressure when encouraging coordinated actions between neighbors where home values are heterogeneous and some homeowners either categorically do not want to move or place a higher value on their home than the incentive can cover. Group action commonly uses an “all-or-nothing” approach where the incentive being implemented is conditional on everyone within the group participating. This project seeks to experimentally test a novel group-based “connected” bidding mechanism to encourage spatial coordination while minimizing group pressure. The experiment uses an unframed design with heterogeneous costs of tokens as a proxy for home values. Student participants are randomly assigned to a group of four and given information on the assessed fair market value (“FMV”) and cost of a token, which is heterogeneous across participants. We test three within-subject treatments: control (individual FMV offers); Agglomeration Bonus (AB); and Connected Bidding (CB). In the AB treatment, participants are given the opportunity to accept an offer 10% above their FMV conditional on everyone else in their group accepting. The CB treatment instead allows participants to provide an anonymous bid that they would need to give up their token, which is then summed with the other three group members’ bids to form a connected bid, where the lowest connected bids will be accepted to be implemented until the predetermined budget is exhausted. Sessions are randomly assigned which treatment to start with, and each AB and CB treatment includes a two-minute chat box with group members, as well as a fallback option where participants can give up their token for FMV to reduce group pressure. Our results do not support our central hypothesis that the CB treatment would be more efficient at generating buyouts with heterogeneity and decrease pressure and increase fairness perceptions with group action. We attribute this absence of findings to a combination of participant confusion or inattention, and a diffusion of social pressure due to too low stakes in our setting and hedging of earnings across rounds.
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Keywords
Beach nourishment, Agglomeration Bonus, Connected Bidding, Flood prevention