Equity Implications of Federal-Local Cost-Sharing in Flood Buyouts: A Game-Theoretic Analysis with Heterogeneous Homeowners

A groundbreaking AI and game theory analysis reveals how federal disaster policy systematically disadvantages vulnerable communities in climate adaptation. Researcher Yuqun Zhou's paper, 'Equity Implications of Federal-Local Cost-Sharing in Flood Buyouts: A Game-Theoretic Analysis with Heterogeneous Homeowners,' uses a three-level Stackelberg game model to analyze strategic interactions between federal authorities, local governments, and homeowners. The study examines 34,493 households across nine flood-prone US regions and finds that FEMA's standard 75/25 cost-sharing arrangement produces stark racial and economic disparities, with low-income households relocating at roughly one-quarter the rate of high-income households—a relocation ratio gap of 0.26.

The model identifies three specific mechanisms driving these inequitable outcomes: differential discount rates across income groups, local governments' incentives to preserve their tax base, and participation thresholds that exclude fiscally constrained communities. The technical analysis demonstrates that achieving near-equity in relocation outcomes requires increasing federal cost shares to at least 85%, though the research also identifies equity-weighted mechanisms that could achieve similar outcomes at 25% lower cost. This work provides a rigorous, quantitative foundation for understanding observed disparities in climate adaptation programs and offers concrete policy levers—moving beyond observational studies to predictive modeling that can test intervention effectiveness before implementation.