Research

Job Market Paper

“Sorting Over Wildfire Risk Information.” With Sarah Bass.

Abstract

We study how information about climate risk changes household beliefs, housing demand, and residential sorting in equilibrium. We embed a Bayesian model of belief updating into a structural model of neighborhood choice in which households have heterogeneous preferences over housing prices and wildfire risk. We use the introduction of a wildfire risk disclosure policy in California as an information shock that changes information about wildfire risk without changing the underlying physical hazard, allowing us to identify how belief updating affects location choices and housing prices in equilibrium. Our estimates suggest that prior to the disclosure policy, households exhibit substantial uncertainty in their beliefs about neighborhood wildfire risk. We find that the divergence in beliefs about neighborhood risk induced by the disclosure policy is equivalent to the effect of exposure to about 8 wildfire events. Counterfactual simulations that remove the disclosure policy show that this change in beliefs induces substantial re-sorting of households based on their relative levels of sensitivity to wildfire risk: more risk-averse, mortgage-financed buyers shift away from areas newly perceived as higher risk, while less risk-averse buyers, particularly cash buyers and those purchasing homes for non-primary use, sort in. Re-sorting is also supported by general-equilibrium price effects: prices in neighborhoods newly perceived as risky fall relative to neighborhoods believed to be safer. As a result, disclosure reallocates wildfire exposure across households. Our findings show that the provision of wildfire risk information can reshape housing markets and the distribution of climate risk, even when the underlying physical hazard remains unchanged.

Working Papers

“Home Financing Responses to Wildfire Risk Information and Insurance Availability.” With Sarah Bass.

Abstract

Wildfire risk has become a key force shaping California’s housing market. We study home buyer responses to a 2021 reform that requires home sellers in California to disclose parcel-level wildfire risk and potential homeowners insurance constraints in designated fire-hazard zones. We show that following implementation of the risk disclosures, the share of all-cash purchases in fire hazard zones increased by 14 percentage points relative to mortgage-financed purchases. Concurrent with the rise in cash purchases, owner-occupancy fell by 13 percentage points, suggesting a reallocation of high-risk homes from primary residences toward second homes and vacation properties. The financing shifts are largest in state-managed wildfire areas, in older homes subject to tighter underwriting, and in ZIP codes with greater reliance on California’s homeowners insurer of last resort. While mortgage lenders require insurance, all-cash buyers may delay purchasing insurance, underinsure, or forgo insurance altogether. Thus, the shift from mortgage-financed to all-cash transactions suggests a reallocation of climate risk away from insurers and towards individual households.

“Evaluating the Effects of Place-Based Policy: Evidence from Opportunity Zones and the Low Income Housing Tax Credit.”

“Benchmarking Big Data with Mixed-Frequency Multivariate Time Series Models.” With Scott A. Brave, R. Andrew Butters, Ezra Karger, and Ross Cole.

“Tracking U.S. Consumers in Real Time with a New Weekly Index of Retail Trade.” With Scott A. Brave, Daniel Aaronson, Ezra Karger, and Spencer Krane. Federal Reserve Bank of Chicago Working Paper.

Works in Progress

“Housing Vouchers and Homelessness.”

Publications

“Forecasting unemployment insurance claims in realtime with Google Trends.” With Daniel Aaronson, Scott A. Brave, R. Andrew Butters, Daniel W. Sacks, and Boyoung Seo. International Journal of Forecasting.

“The Perils of Working with Big Data and a SMALL Framework You Can Use to Avoid Them.” With Scott A. Brave and R. Andrew Butters. Business Horizons.

Other Writing

“Looking Down the Road with ALEX: Forecasting U.S. GDP.” With Scott A. Brave and R. Andrew Butters. Chicago Fed Letter.

“The Stay-at-Home Labor Market: Google Searches, Unemployment Insurance, and Public Health Orders.” With Daniel Aaronson, Scott A. Brave and R. Andrew Butters. Chicago Fed Letter.

“A Closer Look at the Correlation Between Google Trends and Initial Unemployment Insurance Claims.” With Scott A. Brave and R. Andrew Butters. Chicago Fed Insights.

“Another Look at the Correlation Between Google Trends and Initial Unemployment Insurance Claims.” With Scott A. Brave and R. Andrew Butters. Chicago Fed Insights.

“What Can Revisions to the NFCI Tell Us About Stock Market Volatility?” With Scott A. Brave and Ross Cole. Chicago Fed Insights.

Credited as Research Assistant

Daniel Aaronson, Scott A. Brave, R. Andrew Butters, Daniel W. Sacks, and Boyoung Seo. “Using the eye of the storm to predict the wave of Covid-19 UI claims.” Covid Economics, 9, pp. 59-76.

R. Jason Faberman and Daniel Hartley. “The Relationship between Race, Type of Work, and Covid-19 Infection Rates.” Chicago Fed Working Paper, 2020.

Teresa Garcia-Milà, Therese J. McGuire, and Wallace E. Oates. “Strength in diversity? Fiscal federalism among the fifty US states.” International Tax and Public Finance, 25(4), pp. 1071-1091.

Teresa Garcia-Milà and Therese J. McGuire. “When Theory Meets Practice: Can We Implement the Optimal Fiscal Federal Structure?” Work in progress.

My undergraduate honors thesis examined the possibility of correcting sample selection bias with detailed controls, using a large dataset of wholesale used car auctions. It won the Adam Smith Prize for Excellence in Economics.