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Social interactions and households’ flood insurance decisions

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  • Hu, Zhongchen

Abstract

Flooding is the most costly natural disaster faced by US households, yet policymakers are puzzled by the low take-up rates for flood insurance. Leveraging novel transaction-level data, this paper studies the influence of social interactions on households’ insurance decisions. I show that households increase flood insurance purchases by 1–5 percent when their geographically distant friends are exposed to flooding events or to campaigns for flood insurance. These exogenous shocks to far-away friends should not affect local households’ own insurance decisions except through peer effects. I provide evidence suggesting that social interactions facilitate learning through information dissemination and attention triggering.

Suggested Citation

  • Hu, Zhongchen, 2022. "Social interactions and households’ flood insurance decisions," Journal of Financial Economics, Elsevier, vol. 144(2), pages 414-432.
    • Handle: RePEc:eee:jfinec:v:144:y:2022:i:2:p:414-432
    DOI: 10.1016/j.jfineco.2022.02.004
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    Cited by:

    1. Xu, Yilan & Huang, Yi, 2022. "Does climate change news inform flood insurance take?," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322178, Agricultural and Applied Economics Association.
    2. Justin Contat & Caroline Hopkins & Luis Mejia & Matthew Suandi, 2023. "When Climate Meets Real Estate: A Survey of the Literature," FHFA Staff Working Papers 23-05, Federal Housing Finance Agency.
    3. Joakim A. Weill, 2023. "Flood Risk Mapping and the Distributional Impacts of Climate Information," Finance and Economics Discussion Series 2023-066, Board of Governors of the Federal Reserve System (U.S.).
    4. Joakim Weill, 2023. "Flood Risk Mapping and the Distributional Impacts of Climate Information," Working Papers 2023.10, FAERE - French Association of Environmental and Resource Economists.
    5. Garbarino, Nicola & Guin, Benjamin & Lee, Jonathan, 2022. "The Effects of Subsidized Flood Insurance on Real Estate Markets," Bank of England working papers 995, Bank of England.
    6. Santi, Caterina, 2023. "Investor climate sentiment and financial markets," International Review of Financial Analysis, Elsevier, vol. 86(C).
    7. Braun, Alexander & Braun, Julia & Weigert, Florian, 2023. "Extreme weather risk and the cost of equity," CFR Working Papers 23-08, University of Cologne, Centre for Financial Research (CFR).
    8. Dimuthu Ratnadiwakara & Buvaneshwaran Venugopal, 2023. "Climate risk perceptions and demand for flood insurance," Financial Management, Financial Management Association International, vol. 52(2), pages 297-331, June.
    9. Mayer, Maximilian, 2023. "Climate change concerns and information spillovers from socially-connected friends," IWH Discussion Papers 2/2023, Halle Institute for Economic Research (IWH).

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    More about this item

    Keywords

    Flood insurance; Social learning; Peer effects; Social networks;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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