Addressing coordination problems in residential buyouts: Experimental evidence for managed retreat in the face of climate change-related threats

Voluntary home buyouts can be an effective way to protect homeowners from severe and repeated flood risk while also benefiting the local community by creating flood control areas and reducing local infrastructure costs. Successful implementation of residential buyout programs is complicated by homeowners’ (unobservable) attachment to place and community. In the presence of such preferences, standard posted price offers at fair market value are generally too low to induce a majority of homeowners to move, resulting in spatially fragmented (checkerboarded) buyout patterns, which can be troublesome from both a community and environmental perspective. To help resolve the resulting coordination problem, we experimentally test two acquisition mechanisms from the land conservation literature in the residential flood buyout context, posted price offers and reverse auctions, and pair them with two additional program features, agglomeration bonuses and target constraints (also known as provision points—a threshold required for the buyout to be implemented). Using an induced-value approach, we show that both reverse auctions and agglomeration bonuses are effective at increasing contiguity in this setting by inducing more homeowners to accept buyout offers and to move away from the neighborhood. However, reverse auctions have the advantage of being flexible enough to accommodate heterogeneity in place and community attachment. If external benefits are non-linearly increasing in the number of contiguous residential lots acquired, adding a target constraint to a reverse auction is a potential avenue for effective future buyouts.