The Spillover Effect of FEMA's Community Rating System

Abstract

The Community Rating System (CRS) was established to encourage community to voluntarily conduct higher standard floodplain management. Participating communities are rewarded with flood insurance discounts based on CRS points earned through CRS eligible activities. This paper examines an overlooked question by previous research - whether there is spillover effect of the CRS program regarding flood damage reduction, as well as the potential mechanism of this spillover effect. Results indicate that there is a short-term spillover effect. For non-CRS communities, having a CRS neighbor leads to about $0.5 million reduction in annual flood damage a few years after the treatment. This impact is possibly because of community’s learning from their CRS neighbors by investing more on flood risk mitigation activities.