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The Demand for Public Flood Protection under a Compulsory Private Flood Insurance Scheme
... By using data obtained from experiments, Mol et al. (2020) found that investments in damage-reducing measures increased when the expected value of the damage increased under conditions of compulsory insurance coverage for low-probability/high-impact risk. Osberghaus et al. (2023) found that compulsory flood insurance did not undermine citizens' support for public flood risk reduction. While previous empirical studies have largely highlighted the positive aspects of mandatory insurance, empirical research on mandatory insurance for vehicles, such as automobiles and bicycles, is limited to studies such as that by Kim (2021), despite its importance. ...
Several empirical studies have attempted to clarify whether differences in regulations affect people's behavior. However, due to a lack of data, few have attempted to clarify whether these differences affect the purchase of insurance. Therefore, in this study, I conducted a survey of consumers in Japan and analyzed the characteristics of those who bought bicycle insurance. My findings are as follows: First, users tend to purchase bicycle insurance in prefectures where it is compulsory. Second, bicycle users with a high level of insurance knowledge tend to purchase insurance. Third, consumers who use bicycles more frequently tend to purchase insurance.
... Water issues are further exacerbated by economic factors that often have a direct negative impact on communities' lives, especially in urban areas. Various water issues that occur in urban areas such as floods often have an impact on land values [20,21] . ...
Addressing these water management challenges requires a comprehensive and integrated approach. Floods and other water-related challenges in urban areas can have an impact on land values. However, the lack of studies has developed a comprehensive index methodology related to examining floods and land value relationships for urban areas. Therefore, the main purpose of this study is to develop a comprehensive index methodology related to examining floods and land value relationships for urban areas that is called a Flood-Adjusted Land Value Index (FALVI) Methodology. This paper illustrates the importance of the proposed FALVI methodology to determine the relationship between flood events and land value. Important variables within three main aspects—environmental, socio, and historical flood variables—would be elaborated and measured by GIS-based analysis. It provides a more accurate and thorough assessment of property values by taking flood risk variables into account throughout the valuation process. This methodology is also regarded as an essential methodology for examining floods and land value links in metropolitan areas. FALVI can help guide government strategies on flood management, land use planning, and catastrophe risk reduction. By identifying high-risk locations, governments can prioritize flood mitigation measures and enact restrictions that prevent development in susceptible areas. Urban areas in certain watershed systems can be kept viable for the long term by carefully reviewing this methodology and implementing suitable land management strategies.
Floods are among the most frequent and severe natural hazards worldwide, with climate change increasing uncertainty. While the literature on flood risk management emphasizes proactive, resilience‐based approaches over traditional resistance‐ and recovery‐oriented strategies, the role of insurers beyond risk transfer remains underexplored. Our study addresses this gap through a systematic review of 309 academic papers contributing to extending the flood risk management cycle with additional dimensions. Furthermore, a content analysis of 25 sustainability reports from large P&C insurers reveals differences in focus, yet a broad engagement in most of the identified dimensions with activities such as early loss recovery services, “building back better” programs, public and policyholder education initiatives, and investments in nature‐based flood protection projects. Our findings suggest that a broadened flood risk management and sustainability perspective provides a valuable framework for insurers to shape their role in enhancing risk management and insurability in a multi‐stakeholder context.
The flood insurance protection gap, the level of uninsured flood risk, is a problem faced by many European countries and is expected to increase due to climate change. In some countries a cause of low demand for flood insurance is the crowding out of private insurance uptake due to the anticipation of government compensation for uninsured damage, a phenomenon known as charity hazard. This study applies a partial equilibrium model of flood insurance markets to explore the extent of charity hazard and the insurance protection gap for EU-countries until 2050. For this analysis, we apply an expected utility framework with insurance purchase decision functions that capture the probability, ambiguity and extent of government compensation. By accounting for country-level insurance systems and government compensation types, as well as regional flood risk, we aim to assess how charity hazard develops under different conditions. The extent of charity hazard decreases with uncertainty of government compensation, as well as with higher flood risk. Considering current and future conditions, the highest impact of charity hazard is observed in regions of Germany and Italy. The projected insurance protection gap is highest in Germany, followed by Spain, Poland and Italy, and is expected to grow towards 2050.
Flood risk may differ across income levels. In this paper, I employ unique survey data from more than 8000 households in Germany to derive an integrated flood risk indicator that accounts for local flood exposure, assets-at-risk, housing characteristics, and household coping behavior. The results suggest that low-income households, due to their smaller homes and less valuable assets, face lower monetary flood risks than wealthier households despite the former’s limited capacity to implement protection measures and purchase insurance. Relative to the available financial budget, however, expected flood damage weighs higher for low-income households.
This paper focuses on the willingness-to-pay (WTP) for public investments in safety measures, in particular for reducing the risk of natural flood hazard. The study uses the method of contingent valuation to collect individual data from a nationwide sample of German households. Regarding the absolute value of estimated WTP, our results reveal that average values are sensitive to outliers and median values should be preferred. The median annual WTP turns out to be 50 €. A multivariate analysis of the determinants of WTP shows that prior experience with flooding is of key importance. We further conclude that the true ability to pay is highly significant for the stated willingness-to-pay. The multivariate approach also sheds some light on the complex relationship between age and WTP. We find a convex link between WTP and age. It might stem from a higher awareness of environmental problems among the younger generation, and from higher risk aversion among the elderly. We conclude that governmental safety policy initiatives could be fruitful in protection against flood risks in Germany. However, we also observe that better knowledge of climate risks would strongly improve the willingness of the German population to invest in safety measures.
We examine mechanisms as to why insurance and individual risk reduction activities are complements instead of substitutes. We use data on flood risk reduction activities and flood insurance purchases by surveying more than 1000 homeowners in New York City after they experienced Hurricane Sandy. Insurance is a complement to loss reduction measures undertaken well before the threat of suffering a loss, which is the opposite of a moral hazard effect of insurance coverage. In contrast, insurance acts as a substitute for emergency preparedness measures that can be taken when a loss is imminent, which implies that financial incentives or regulations are needed to encourage insured people to take these measures. We find that mechanisms leading to preferred risk selection are related to past flood damage and a crowding out effect of federal disaster assistance as well as behavioral motivations to reduce risk.
This paper presents a lab-in-the-field experiment with 2111 Dutch homeowners in floodplain areas to examine the impacts of financial incentives and behavioral motivations for self-insurance under different flood insurance schemes. We experimentally varied the insurance type (mandatory public versus voluntary private) and the availability of a premium discount incentive for investing in flood damage mitigation measures. This set-up allowed us to examine the existence of moral hazard, advantageous selection and the behavioral motivations of individual agents who face these different insurance types, without the selection bias that makes a causal inference from survey studies problematic. The main results show that a premium discount can increase investments in self-insurance under both private and public insurance. Moreover, we find no support for moral hazard in our natural disaster insurance market, but we do find a substantial share of cautious people who invest both in private insurance as well as in self-insurance, indicating advantageous selection. The results have implications for the design of insurance schemes to cope with increasing natural disaster risks.
This paper analyses the preferences of public officials and citizens related to the impacts of floods in the Gothenburg region in Sweden. Citizens and public officials in the flood-prone region answered identical choice-experiment surveys characterized by the negative impacts of floods: property damage, traffic disturbances, and water supply security. By having citizens and public officials respond to identical surveys, it was possible to analyse whether and, if so, how priorities and monetary valuation differed in respect of the different negative effects of floods. The overall finding is that public officials’ and citizens’ preferences seem to converge, and that both citizens and public officials are willing to pay to reduce flood-related costs. Public officials have similar priorities to citizens, in that security of drinking water provision was given priority over property damage, while traffic disturbances were ranked lowest. In terms of their respective willingness to pay to avoid the negative impact of floods, public officials were willing to pay more than citizens to pay for securing the drinking water supply and for restoring damaged property, though these differences were not substantial. There are, however, some differences in preference between citizens and public officials: the latter preferred not to spend anything to reduce traffic disturbances caused by floods, whilst citizens were willing to do so. These results imply that decisions made within the public sector will not come to differ substantially from citizens’ preferences.
This paper examines the relationship between averting expenditures / choices and perceived health risks. Models in the literature often employ risk perceptions as explanatory variables without addressing the potential endogeneity of the perceived risk. We examine the implications of ignoring endogeneity in this context, using an application to both drinking water choices and expenditures and perceived health risks. Our data are from an Internet-based cross-Canada survey that employs a novel interactive risk ladder to elicit mortality risk perceptions relating to water. We employ two fundamentally different methods to assess the impact of risk perceptions on behavior: an analysis of expenditures on alternate water sources and a model of proportional choice of water sources. Results suggest the presence of averting behavior with respect to perceived mortality risks and that the estimated effect of water risks is greater than 3 times higher when using approaches that correct for endogeneity compared to models that do not.
Adverse selection and moral hazard are commonly expected to cause market failures in natural
disaster insurance markets. However, such problems may not arise if individuals mainly buy
insurance based on risk preferences. Advantageous selection can occur if individuals with
insurance are highly risk averse and seek to reduce risk. We offer a comprehensive empirical study
of risk selection in natural disaster insurance markets and whether disaster preparedness activities
differ when people have natural disaster coverage. Statistical analyses are based on survey data of
individual disaster insurance purchases and risk mitigation activities in Germany and the United
States. Consistent results are obtained in both countries supporting advantageous selection. This
has significant potential public policy relevance regarding the effectiveness of their respective
existing market structures for natural disaster insurance.
The existence of sufficient demand for insurance coverage against
infrequent losses is important for the adequate function of insurance
markets for natural disaster risks. This study investigates how
characteristics of flood risk influence household flood insurance demand
based on household surveys undertaken in Germany and the Netherlands.
Our analyses confirm the hypothesis that willingness to pay (WTP) for
insurance against medium-probability medium-impact flood risk in Germany
is higher than WTP for insurance against low-probability high-impact
flood risk in the Netherlands. These differences in WTP can be related
to differences in flood experience, individual risk perceptions, and the
charity hazard. In both countries there is a need to stimulate flood
insurance demand if a relevant role of private insurance in flood loss
compensation is regarded as desirable, for example, by making flood
insurance compulsory or by designing information campaigns.
Climate change is projected to increase the risk of natural disasters, such as floods and storms, in certain regions. This is likely to raise the demand for natural disaster insurance. We present a stated preference survey using choice modeling with mixed logit estimation methods in order to examine the effects of climate change and the availability of government compensation on the demand for flood insurance by Dutch homeowners. Currently, no private insurance against flood damage is offered in the Netherlands. The results indicate that there are opportunities for the development of a flood insurance market.
▪ Abstract With tools borrowed from the economic analysis of insurance, principal-agency theory has allowed political scientists new insights into the role of information asymmetry and incentives in political relationships. It has given us a way to think formally about power as the modification of incentives to induce actions in the interests of the principal. Principal-agency theory has evolved significantly as political scientists have sought to make it more applicable to peculiarly political institutions. In congressional oversight of the bureaucracy, increasing emphasis has been placed on negotiation of administrative procedures, rather than the imposition of outcome-based incentives, as originally conceived. Awareness of the problem of credible commitment has impelled more dramatic reformulations, in which agents perform their function only when their interests conflict with those of the principal, and they are guaranteed some degree of autonomy. The ‘political master’ finds himself in the position o...
Natural disasters have increased in frequency and severity during the last few decades, causing considerable economic damage and loss of life. A combination of climate and socio-economic change is likely to augment disaster loss trends in the future, creating the need for more sophisticated disaster risk management. A resilient risk management strategy for uncertain low-probability, high-impact risks comprises a package of measures focused on disaster risk prevention, damage mitigation and arrangements for efficient risk sharing. Possible implications of climate change on future risks and risk management policies are outlined. It is argued that financial arrangements such as insurance can play an important role in an adaptation strategy aimed at limiting and ameliorating socio-economic impacts of natural disasters.
Federal disaster assistance is one component of U.S. policy for coping with damaging floods. The president ultimately determines whether or not federal relief is provided to states and local communities following a disaster. Yet, guidelines governing the president's discretion are vague and the total federal cost of disaster assistance is extremely difficult to determine. This study analyzes flood-related presidential disaster declarations from 1965 to 1997. It compares the annual number of flood-related declarations to measures of precipitation and flood damage, finding that presidents have differed significantly in disaster declaration policy. Annual differences in declarations during seven presidential administrations do not cor-respond to the president's political party affiliation. In addition, a state's ability to pay has not been a major consideration in presidential decisions about whether a disaster warrants federal assistance. However, pres-idential decisions are related to whether or not the president is running for reelection. Declarations are also related to changes in legislative and administrative policy. This paper discusses the significance of these findings in the context of national policies governing floods and other disasters.
This paper studies the politico-economic reasons for the refusal of a proposed compulsory flood insurance scheme in Germany. It provides the rationale for such a scheme and outlines the basic features of a market-orientated design. The main reasons for the political rejection of this proposal were the misperceived costs of a state guarantee, legal objections against a compulsory insurance, distributional conflicts between the federal government and the German states on the implied administrative costs and the well known charity hazard of ad hoc disaster relief. The focus on pure market solutions proved to be an ineffective strategy for policy advice in this field. Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment.
Natural disasters risk is increasing in several regions around the world as a result of socio-economic development and climate change. This indicates the importance of establishing affordable and sustainable natural disaster risk management and compensation arrangements. Given the complexity of insuring extreme risks, insurers and governments often cooperate in catastrophe insurance systems. This paper presents a comparative study of the main components and a broad range of indicators of fully private and fully public, as well as public-private (PP) insurance systems, for extreme events, in ten countries. This analysis results in the following nine main recommendations for policymakers who aim to establish new, or improve existing, insurance arrangements for natural disasters: (1) mandatory participation requirements are advisable to achieve a high market penetration rate; (2) adequate monitoring and enforcement mechanisms need to be put in place to ensure compliance with these requirements; (3) the government needs to take responsibility for part of the (extreme) damage in order to keep an insurance system financially viable and affordable; (4) private insurance companies should participate in a PP insurance scheme by selling and administering policies and by covering medium-sized losses; (5) the integration in systems of risk transferring mechanisms is advisable; (6) it is advisable that governments stimulate the building-up of insurers’ reserves by providing tax exemptions; (7) risk mitigation policies should be carefully integrated in a natural disaster insurance system; (8) a detailed assessment and mapping of risk provides the basis for an effective mitigation policy; (9) insurance should provide financial incentives for policyholders to take risk mitigation measures.
It is often difficult to determine what actually was done in work involving data collected with stated preference surveys
because the terms used to describe various procedures have ambiguous and sometimes conflicting meanings. Further, terms used
to describe data collection procedures often are confounded with terms used to describe statistical techniques. We call for
the use of a common nomenclature to describe what was done in a data collection effort for stated preference studies, and
take a first step at setting out such nomenclature. We only seek to improve clarity in the communication of research results
and take no position here on appropriateness of particular procedures.
KeywordsContingent valuation–Discrete choice modeling–Survey questions
This paper discusses the problem of crowding out of insurance by co-existing governmental relief programs - so-called ’charity hazard’ - in a context of different institutional schemes of government relief in Austria and Germany. We test empirically whether an assured partial relief scheme (as in Austria) drives a stronger crowding out of private insurance than a scheme promising full relief which is subject to ad hoc political decision making (as in Germany). Our general finding is that the institutional design of governmental relief programs significantly affects the demand for private natural hazard insurance.
Climate change is projected to cause severe economic losses, which has the potential to affect the insurance sector and public compensation schemes considerably. This article discusses the role insurance can play in adapting to climate change impacts. The particular focus is on the Dutch insurance sector, in view of the Netherlands being extremely vulnerable to climate change impacts. The usefulness of private insurance as an adaptation instrument to increased flood risks is examined, which is currently unavailable in the Netherlands. It is questioned whether the currently dominant role of the Dutch government in providing damage relief is justified from an economic efficiency perspective. Characteristics of flood insurance arrangements in the Netherlands, the United Kingdom, Germany, and France are compared in order to identify possible future directions for arrangements in the Netherlands. It is argued that social welfare improves when insurance companies take responsibility for part of the risks associated with climate change.
Surveys are frequently used by businesses and governments to elicit information about the public’s preferences. They have become the most common way to gather preference information regarding goods, that are not (or are not yet) bought or sold in markets. In this paper we apply the standard neoclassical economic framework to generate predictions about how rational agents would answer such survey questions, which in turn implies how such survey data should be interpreted. In some situations, the standard economic model would be expected to have no predictive power. For situations where it does have predictive power, we compare different survey formats with respect to: (a) the information that the question itself reveals to the respondent, (b) the strategic incentives the respondent faces in answering the question, and (c) the information revealed by the respondent’s answer. Copyright Springer Science+Business Media, Inc. 2007
This paper investigates the influence of public risk mitigating activities on individuals’ decisions to privately mitigate their disaster risks through changes in their risk perceptions. We exploit heterogeneity in measures under the U.S. Community Rating System to empirically demonstrate that public investment in flood risk communication activities crowds-in individuals’ flood insurance demand while activities that lower the flood hazard residents face crowd-out individuals’ flood insurance demand. This paper contributes to the discussion of the efficacy of disaster risk mitigation strategies and who ultimately bears the costs of natural disasters.
Flood risk will increase in many areas around the world due to climate change and increase in economic exposure. This implies that adequate flood insurance schemes are needed to adapt to increasing flood risk and to minimise welfare losses for households in flood-prone areas. Flood insurance markets may need reform to offer sufficient and affordable financial protection and incentives for risk reduction. Here, we present the results of a study that aims to evaluate the ability of flood insurance arrangements in Europe to cope with trends in flood risk, using criteria that encompass common elements of the policy debate on flood insurance reform. We show that the average risk-based flood insurance premium could double between 2015 and 2055 in the absence of more risk reduction by households exposed to flooding. We show that part of the expected future increase in flood risk could be limited by flood insurance mechanisms that better incentivise risk reduction by policyholders, which lowers vulnerability. The affordability of flood insurance can be improved by introducing the key features of public-private partnerships (PPPs), which include public reinsurance, limited premium cross-subsidisation between low-and high-risk households, and incentives for policyholder-level risk reduction. These findings were evaluated in a comprehensive sensitivity analysis and support ongoing reforms in Europe and abroad that move towards risk-based premiums and link insurance with risk reduction, strengthen purchase requirements, and engage in multi-stakeholder partnerships.
This article proposes contemporary best-practice recommendations for stated preference (SP) studies used to inform decision making, grounded in the accumulated body of peer-reviewed literature. These recommendations consider the use of SP methods to estimate both use and non-use (passive-use) values, and cover the broad SP domain, including contingent valuation and discrete choice experiments. We focus on applications to public goods in the context of the environment and human health but also consider ways in which the proposed recommendations might apply to other common areas of application. The recommendations recognize that SP results may be used and reused (benefit transfers) by governmental agencies and nongovernmental organizations, and that all such applications must be considered. The intended result is a set of guidelines for SP studies that is more comprehensive than that of the original National Oceanic and Atmospheric Administration (NOAA) Blue Ribbon Panel on contingent valuation, is more germane to contemporary applications, and reflects the two decades of research since that time. We also distinguish between practices for which accumulated research is sufficient to support recommendations and those for which greater uncertainty remains. The goal of this article is to raise the quality of SP studies used to support decision making and promote research that will further enhance the practice of these studies worldwide.
Natural disaster losses have been increasing worldwide. Insurance is thought to play a critical role in improving resilience to these events by both promoting recovery and providing incentives for investments in hazard mitigation. This review first examines the functioning of disaster insurance markets broadly and then turns to reviewing empirical studies on the role of natural disaster insurance in recovery and the impacts of disaster insurance on incentives for ex ante hazard mitigation and land use. Rigorous empirical work on these topics is limited. The work that has been done suggests that insurance coverage does improve recovery outcomes, but impacts on risk reduction may be modest. More studies comparing outcomes across insured and uninsured properties are needed, particularly for better understanding the role of insurance in climate adaptation.
Expected final online publication date for the Annual Review of Resource Economics Volume 11 is October 4, 2019. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.
Using panel data for North Carolina communities, we estimate dynamic regression models of flood mitigation projects as recognized by the Community Rating System (CRS) of the National Flood Insurance Program. We find serial correlation in CRS points, which we interpret as incremental persistence that reflects physical and human capital accumulation. We find greater levels of mitigation in communities with larger tax revenues and lower levels of crime and unemployment, and a weak, but significant, effect due to recent flood experience. Socioeconomic factors also affect hazard mitigation; CRS points are greater in communities with greater median household income and higher population density. © 2018 by the Board of Regents of the University of Wisconsin System.
We empirically analyze whether federal disaster aid crowds out household purchase of disaster insurance. We combine data on annual household flood insurance purchases for the United States over the period 2000–2011 with data from the two main U.S. post-disaster federal aid programs (FEMA's Individual Assistance grants and SBA's low interest disaster loans). Estimating both fixed-effects and instrumental variable models to account for the endogeneity of disaster assistance grants, we find that receiving individual assistance grants decreases the average quantity of insurance purchased the following year by between 5,000. The reduction we find is roughly 3% of the mean insurance coverage in the sample but larger than the average flood-related IA grant in our sample, which is $2,984. IA is currently limited and larger grants could have different impacts. The crowding out is on the intensive margin; we find no impact on take-up rates, likely because there is a requirement that recipients of disaster aid purchase an insurance policy. We do not know how take-up rates might change without such a requirement. Low interest post-disaster government loans have no systematic effect on insurance purchases.
Understanding global future river flood risk is a prerequisite for the quantification of climate change impacts and planning effective adaptation strategies. Existing global flood risk projections fail to integrate the combined dynamics of expected socio-economic development and climate change. We present the first global future river flood risk projections that separate the impacts of climate change and socio-economic development. The projections are based on an ensemble of climate model outputs, socio-economic scenarios, and a state-of-the-art hydrologic river flood model combined with socio-economic impact models. Globally, absolute damage may increase by up to a factor of 20 by the end of the century without action. Countries in Southeast Asia face a severe increase in flood risk. Although climate change contributes significantly to the increase in risk in Southeast Asia, we show that it is dwarfed by the effect of socio-economic growth, even after normalization for gross domestic product (GDP) growth. African countries face a strong increase in risk mainly due to socio-economic change. However, when normalized to GDP, climate change becomes by far the strongest driver. Both high-and low-income countries may benefit greatly from investing in adaptation measures, for which our analysis provides a basis.
Climate change is expected to worsen the negative effects of natural disasters like floods. The negative impacts, however, can be mitigated by individuals' adjustments through migration and relocation behaviors. Previous literature has identified flood risk as one significant driver in relocation decisions, but no prior study examines the effect of the National Flood Insurance Program's voluntary program-the Community Rating System (CRS)-on residential location choice. This article fills this gap and tests the hypothesis that flood risk and the CRS-creditable flood control activities affect residential location choices. We employ a two-stage sorting model to empirically estimate the effects. In the first stage, individuals' risk perception and preference heterogeneity for the CRS activities are considered, while mean effects of flood risk and the CRS activities are estimated in the second stage. We then estimate heterogeneous marginal willingness to pay (WTP) for the CRS activities by category. Results show that age, ethnicity and race, educational attainment, and prior exposure to risk explain risk perception. We find significant values for the CRS-creditable mitigation activities, which provides empirical evidence for the benefits associated with the program. The marginal WTP for an additional credit point earned for public information activities, including hazard disclosure, is found to be the highest. Results also suggest that water amenities dominate flood risk. Thus, high amenity values may increase exposure to flood risk, and flood mitigation projects should be strategized in coastal regions accordingly.
Condensed summary: In order to evaluate potential trends in global natural catastrophe losses, it is important to compensate for changes in asset values and exposures over time. We create a Global Normalized Catastrophe Catalogue covering weather-related catastrophe losses in the principal developed (Australia, Canada, Europe, Japan, South Korea, United States) and developing (Caribbean, Central America, China, India, the Philippines) regions of the world. We survey losses from 1950 through 2005, although data availability means that for many regions the record is incomplete for the period before the 1970s even for the largest events. After 1970, when the global record becomes more comprehensive, we find evidence of an annual upward trend for normalized losses of 2% per year. Conclusions are heavily weighted by US losses, and their removal eliminates any statistically significant trend. Large events, such as Hurricane Katrina and China flood losses in the 1990s, also exert a strong impact on trend results. In addition, once national losses are further normalized relative to per capita wealth, the significance of the post-1970 global trend disappears. We find insufficient evidence to claim a statistical relationship between global temperature increase and normalized catastrophe losses. Introduction: Economic losses attributed to natural disasters have increased from US659.9 billion in the 1990s (United Nations Development Programme [UNDP], 2004), for an annual growth rate of approximately 8%. Private sector data also show rising insured losses over a similar period (Munich Re, 2001; Swiss Re, 2005). © Cambridge University Press 2008 and Cambridge University Press, 2009.
Benefiting from access to detailed data on the federally run National Flood Insurance Program for the entire state of Georgia, USA, we analyze residential flood insurance purchasing behavior in that state over more than three decades (1978-2010). The demand for flood insurance on an extensive margin, based on take-up rates, is found to be relatively price inelastic. Aligned with the behavioral economics literature, recent flood events temporarily increase purchases, but this effect fades after 3. years. We also find that the proportion of developed area in floodplains has a significant positive impact on insurance take up rates. Contrary to what is often assumed, we do not find evidence that insurance purchase and mitigation efforts are substitutes. Educated individuals, individuals over the age of 45, and African-Americans are, all else equal, more likely to purchase flood insurance.
Public flood protection cannot eliminate totally the risk of flooding. Hence, private mitigation measures which proactively protect homes from being flooded or reduce flood damage are an essential part of modern flood risk management. This study analyses private flood mitigation measures among German households. The final data set covers more than 4200 households from all parts of the country, including flood plains as well as areas which are typically not at a high risk of riverine flooding. The results suggest that the propensity to mitigate flood damage increases i.a. with past damage experience and damage expectations for the future. The latter effect can be interpreted as a ‘climate adaptation signal’ in the flood mitigation behaviour. All other factors remaining equal, a strong belief in a climate-change-induced increase of personal flood damage in the next decades correlates with an increase of the probability of flood mitigation by more than 10 percentage points. Moreover, empirical evidence for moral hazard in the flood mitigation behaviour cannot be observed. Households expecting insurance coverage do not reduce their mitigation efforts. Likewise, the expectation of government relief payments hinders mitigation only for some groups of households.
Insurance coverage of damage caused by overland flooding is currently not available to Canadian homeowners. As flood disaster losses and water damage claims both trend upward, insurers in Canada are considering offering residential flood coverage in order to properly underwrite the risk and extend their business. If private flood insurance is introduced in Canada, it will have implications for the current regime of public flood management and for residential vulnerability to flood hazards. This paper engages many of the competing issues surrounding the privatization of flood risk by addressing questions about whether flood insurance can be an effective tool in limiting exposure to the hazard and how it would exacerbate already unequal vulnerability. A case study investigates willingness to pay for flood insurance among residents in Metro Vancouver and how attitudes about insurance relate to other factors that determine residential vulnerability to flood hazards. Findings indicate that demand for flood insurance is part of a complex, dialectical set of determinants of vulnerability.
Principal-agent problems can arise when preferences of voters are not aligned with preferences of political representatives. Often the consequence of the political principal-agent problem is political catering to special interests. In this paper I provide examples of principal-agent problems regarding public spending. The examples concern construction or extension of concert halls in two German cities. Resistance to public funding for the concert halls was particularly strong in electoral districts with large constituencies on the left. The evidence indicates that political representatives were more bourgeois than their constituencies. In the cases studied asymmetric information did not prevail and voters were able to discipline their representatives through referenda that countered the results of voting by political representatives.
This study pursues the external validation of stated preference methods by comparing survey responses from verified voters with the outcome of a parallel public referendum on a conservation and preservation program to be funded by a local property tax surcharge. The majority of respondents were unaware of the upcoming referendum, and the experimental design allows us to control for referenda-related information effects as well as respondents’ perceptions regarding the consequentiality (i.e. the potential policy impact) of their survey votes. We find the survey under-predicts “yes” referendum votes at the precinct-level. These differences go away, however, if we focus only on respondents who perceived their survey vote to be consequential. Negative hypothetical bias among inconsequential survey respondents is also evident in the estimation of willingness to pay, and controlling for consequentiality increases construct validity.
Hurricane Katrina illustrates the natural disaster syndrome. Prior to a disaster, individuals in hazard-prone regions do not voluntarily adopt cost-effective loss reduction measures. The federal government then comes to the rescue with disaster assistance even if it claimed it had no intention of doing so prior to the event. There are a number of reasons why individuals do not protect themselves prior to a disaster. They underestimate the likelihood of a future disaster, often believing that it will not happen to them; have budget constraints; are myopic in their behavior; and/or do not want to be the only one on the block modifying their structure. Given this lack of interest in voluntary protection, benefit-cost analysis can determine when a well-enforced building code would be appropriate. The article concludes by highlighting the importance of public-private partnerships as a way of reducing future disaster losses and aiding the recovery process.
This study aimed to clarify public preferences for flood control measures in Japan, willingness to pay (WTP), and the main factors involved in WTP by applying the contingent valuation method. Findings showed that most residents surveyed expected some flood control measures, and revealed a diversity of interest in river management. WTP levels for different measures ranged from a mean of ¥2,887 to ¥4,861 and from a median of ¥1,000 to ¥2,000. However, WTP for additional flood risk reduction beyond initial levels was found to be zero. This was considered to be because WTP for flood risk reduction must be determined within a multi-risk context. WTP for flood control measures may increase with per capita income, individual preparedness, and/or experience with flooding, but may decrease with distance from a river, acceptability of flood risk, and provision of environmental information. Furthermore, perception of flood risk may increase WTP, while perception of other risks may decrease it. Methods of dealing with environmental risk that were proposed in the survey may have affected WTP levels.
After the flooding in 2002 European governments provided billions of Euros of financial assistance to their citizens. Although there is no doubt that solidarity and some sort of assistance are reasonable, the question arises why these damages were not sufficiently insured. One explanation why individuals reject to obtain insurance cover against natural hazards is that they anticipate governmental and private aid. This problem became to be known as “charity hazard”. The present paper gives an economic analysis of the institutional arrangements on the market for natural disaster insurances focusing on imperfections caused by governmental financial relief. It provides a theoretical explanation why charity hazard is a problem on the market for natural disaster insurances, in the way that it acts as an obstacle for the proper diffusion and therefore the establishment of natural hazard insurances. This paper provides a review of the scientific discussion on charity hazard, provides a theoretical analysis and points out the existing empirical problems regarding this issue.
Climate change is projected to increase flood risks in certain regions due to an increase in both precipitation and sea level rise. In addition, socio-economic scenarios project an increase in urbanization in flood prone areas, which results in a higher damage potential. The combined effect of climate and land use change on flood risks requires innovative adaptation policies to cope with rising risks. Increasingly, attention is paid to the role insurance can play in mitigating damage by providing incentives to policyholders to undertake damage reducing measures. The willingness of homeowners in the Netherlands to undertake measures that mitigate flood damage in exchange for benefits on hypothetical flood insurance policies is examined using surveys. The results indicate that many homeowners are willing to make investments in mitigation. In particular, approximately two-thirds are willing to invest in water barriers in exchange for a premium reduction and about a fifth are willing to replace floor types that are vulnerable to flooding with water resistant floor types. Furthermore, about a quarter are willing to move central heating installations to floors safe against flooding in favor of a reduction in the insurance premium. Estimates of the effectiveness of these mitigation measures to limit potential flood damage in the river delta indicate that prevented damage could be substantial, namely in the order of 1 billion euro or larger. Reductions in (absolute) flood risk due to mitigation are especially large under climate change. A probit model indicates that existing arrangements for compensating flood damage, risk awareness and perceptions, and geographical characteristics are important determinants in the decision to undertake mitigation.
Social and/or political involvement within the population is often argued to enhance public sector performance. The underlying idea is that engagement fosters political awareness and interest and increases the public's monitoring ability. Still, weak fiscal autonomy can undermine voters' interest in and demand for an efficient production of public services. In our contribution, we test whether and how voter involvement in the political sphere is related to government performance – in terms of its efficiency – using a broad panel of German municipalities. Our results suggest that voter involvement indeed has a positive impact on cost efficiency. Crucially, however, this efficiency-enhancing effect of voter involvement is significantly positively affected by local governments' fiscal autonomy.
Alternative descriptions of a decision problem often give rise to different preferences, contrary to the principle of invariance that underlines the rational theory of choice. Violations of this theory are traced to the rules that govern the framing of decision and to the psychological principles of evaluation embodied in prospect theory. Invariance and dominance are obeyed when their application is transparent and often violated in other situations. Because these rules are normatively essential but descriptively invalid, no theory of choice can be both normatively adequate and descriptively accurate.
This article describes the mixlogit Stata command for fitting mixed logit models by using maximum simulated likelihood. Copyright 2007 by StataCorp LP.
This paper studies the influence of mass media on U. S. government response to approximately 5,000 natural disasters occurring
between 1968 and 2002. These disasters took nearly 63,000 lives and affected 125 million people per year. We show that U.
S. relief depends on whether the disaster occurs at the same time as other newsworthy events, such as the Olympic Games, which
are obviously unrelated to need. We argue that the only plausible explanation of this is that relief decisions are driven
by news coverage of disasters and that the other newsworthy material crowds out this news coverage.
This study employs the hedonic property price method to examine the effects of flood hazard on coastal property values. We utilize Geographic Information System data on National Flood Insurance Program flood zones and residential property sales from Carteret County, North Carolina. Our results indicate that location within a flood zone lowers property value. Price differentials for flood risk and the capitalized value of flood insurance premiums are roughly equivalent-both exhibiting a nonlinear relationship in flood probability. Our results support the conclusion that flood zone designation and insurance premiums convey risk information to potential buyers in the coastal housing market. Copyright The Journal of Risk and Insurance, 2008.
A perennial question about the National Flood Insurance Program is: how can participation be increased? An empirical analysis of individual-level data reveals that in a sample of coastal areas the participation rate is 49 percent of eligible properties. Participation responsiveness to price is inelastic, but it has been increased by the mandatory purchase requirements for mortgage borrowers. Easing conditions for participation in the program would probably not reduce flood control measures, such as seawalls, which may degrade beach conditions and coastal ecosystems. Copyright The Journal of Risk and Insurance.
In Germany, flood insurance is provided by private insurers as a supplement to building or contents insurance. This article presents the results of a survey of insurance companies with regard to eligibility conditions for flood insurance changes after August 2002, when a severe flood caused 1.8 billion euro of insured losses in the Elbe and the Danube catchment areas, and the general role of insurance in flood risk management in Germany. Besides insurance coverage, governmental funding and public donations played an important role in loss compensation after the August 2002 flood. Therefore, this article also analyzes flood loss compensation, risk awareness, and mitigation in insured and uninsured private households. Insured households received loss compensation earlier. They also showed slightly better risk awareness and mitigation strategies. Appropriate incentives should be combined with flood insurance in order to strengthen future private flood loss mitigation. However, there is some evidence that the surveyed insurance companies do little to encourage precautionary measures. To overcome this problem, flood hazards and mitigation strategies should be better communicated to both insurance companies and property owners.
News Droughts, News Floods
- T Eisensee
- D Strömberg
- U S Disaster Relief
Eisensee, T., & Strömberg, D. (2007). News Droughts, News Floods, and U. S. Disaster Relief.
The Quarterly Journal of Economics, 122(2), 693-728.
by guest on January 29, 2023. Copyright 2022
7 Gründe, warum eine Pflichtversicherung gegen Naturgefahren falsch wäre
- Gdv
GDV (2016). 7 Gründe, warum eine Pflichtversicherung gegen Naturgefahren falsch wäre.