Question 2-3- The U.S government subsidizes flood insurance because those who want to buy it live in the flood plain and cannot get it at reasonable rates. What inefficiency does this create? "Subsidies destroy wealth by moving assets from a higher- to lower-valued use" (Froeb, p.20). The inefficiency that subsidized flood insurance creates is that it presents a lower value for the insurance company. Homeowners who choose to live in the flood plain should expect to pay more for flood insurance because the likelihood of flood damage to their home is higher