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Bounded Rationality, Climate Risks, and Insurance: Is There a Market for Natural Disasters?

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  • W. J. Wouter Botzen
  • Jeroen C.J.M. van den Bergh

Abstract

This paper examines the role of insurances to reduce uncertainty associated with climate change losses for individuals. Of special interest is the value individuals place on the reduction of increased flood risks by insurance coverage. Using rank-dependent utility and prospect theories, risk premiums are estimated under different climate change scenarios for the Netherlands. The study delivers two main insights. First, estimation results suggest that a profitable flood insurance market could be feasible. Second, climate change has the potential to increase the profitability of offering flood insurance.

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File URL: http://le.uwpress.org/cgi/reprint/85/2/265
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Bibliographic Info

Article provided by University of Wisconsin Press in its journal Land Economics.

Volume (Year): 85 (2009)
Issue (Month): 2 ()
Pages: 265-278

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Handle: RePEc:uwp:landec:v:85:y:2009:i:2:p:265-278

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Web page: http://le.uwpress.org/

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Cited by:
  1. Nicola Ranger & Andrew Williamson, 2011. "Forecasting non-life insurance demand in the BRICS economies: a preliminary evaluation of the impacts of income and climate change," Grantham Research Institute on Climate Change and the Environment Working Papers 61, Grantham Research Institute on Climate Change and the Environment.
  2. repec:mar:magkse:20134 is not listed on IDEAS
  3. Klaus Eisenack & Rebecca Stecker & Diana Reckien & Esther Hoffmann, 2012. "Adaptation to climate change in the transport sector: a review of actions and actors," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 17(5), pages 451-469, June.
  4. Konrad, Kai A. & Thum, Marcel, 2012. "The role of economic policy in climate change adaptation," EIB Working Papers 2012/02, European Investment Bank (EIB).
  5. Nicola Ranger & Swenja Surminski, 2011. "A preliminary assessment of the impact of climate change on non-life insurance demand in the BRICS economies," Grantham Research Institute on Climate Change and the Environment Working Papers 63, Grantham Research Institute on Climate Change and the Environment.
  6. Claudia Schwirplies & Andreas Ziegler, 2013. "Are German Tourists Environmental Chameleons? A Micro-econometric Analysis of Adaptation to Climate Change," MAGKS Papers on Economics 201334, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  7. Alpaslan Akay & Peter Martinsson & Haileselassie Medhin & Stefan Trautmann, 2012. "Attitudes toward uncertainty among the poor: an experiment in rural Ethiopia," Theory and Decision, Springer, vol. 73(3), pages 453-464, September.
  8. Botzen, W.J.W. & van den Bergh, J.C.J.M., 2012. "Risk attitudes to low-probability climate change risks: WTP for flood insurance," Journal of Economic Behavior & Organization, Elsevier, vol. 82(1), pages 151-166.
  9. Oberlack, Christoph & Neumärker, Bernhard, 2013. "A diagnostic approach to the institutional analysis of climate adaptation," The Constitutional Economics Network Working Papers 01-2013, University of Freiburg, Department of Economic Policy and Constitutional Economic Theory.
  10. Elisabeth Gsottbauer & Jeroen den Bergh, 2013. "Bounded rationality and social interaction in negotiating a climate agreement," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 13(3), pages 225-249, September.
  11. W. Botzen, 2011. "Alistair Munro: Bounded Rationality and Public Policy: A Perspective from Behavioural Economics. Ian J. Bateman (ed.): The Economics of Non-Market Goods and Resources," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 49(2), pages 305-308, June.
  12. Elisabeth Gsottbauer & Jeroen Bergh, 2011. "Environmental Policy Theory Given Bounded Rationality and Other-regarding Preferences," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 49(2), pages 263-304, June.
  13. W. Botzen & J. Bergh & L. Bouwer, 2010. "Climate change and increased risk for the insurance sector: a global perspective and an assessment for the Netherlands," Natural Hazards, International Society for the Prevention and Mitigation of Natural Hazards, vol. 52(3), pages 577-598, March.

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