IDEAS home Printed from https://ideas.repec.org/p/cfi/fseres/cf019.html
   My bibliography  Save this paper

Are People Insured Against Natural Disasters? Evidence from the Great Hanshin-Awaji (Kobe) Earthquake in 1995

Author

Listed:
  • Yasuyuki Sawada

    (Faculty of Economics, University of Tokyo)

  • Satoshi Shimizutani

    (Institute of Economic Research, Hitotsubashi University)

Abstract

We investigate whether people were insured against unexpected losses caused by the Great Hanshin-Awaji (Kobe) earthquake in 1995. The unique household data employed led to several empirical findings under a natural-experimental situation. The complete consumption insurance hypothesis is rejected overwhelmingly, suggesting the ineffectiveness of the formal and/or informal insurance mechanisms against the earthquake. We also investigate possible factors that inhibit full risk-sharing. Transfers may be particularly ineffective as insurance against losses for co-resident households. Households borrow extensively against housing damages, whereas dissavings are utilized for smaller asset damages, implying a hierarchy of risk-coping measures, from dissaving to borrowing.

Suggested Citation

  • Yasuyuki Sawada & Satoshi Shimizutani, 2005. "Are People Insured Against Natural Disasters? Evidence from the Great Hanshin-Awaji (Kobe) Earthquake in 1995," CARF F-Series CARF-F-019, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    • Handle: RePEc:cfi:fseres:cf019
    as

    Download full text from publisher

    File URL: https://www.carf.e.u-tokyo.ac.jp/old/pdf/workingpaper/fseries/26.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Zeldes, Stephen P, 1989. "Consumption and Liquidity Constraints: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 305-346, April.
    2. Kenneth I. Wolpin & Mark R. Rosenzweig, 2000. "Natural "Natural Experiments" in Economics," Journal of Economic Literature, American Economic Association, vol. 38(4), pages 827-874, December.
    3. Cox, Donald & Jappelli, Tullio, 1990. "Credit Rationing and Private Transfers: Evidence from Survey Data," The Review of Economics and Statistics, MIT Press, vol. 72(3), pages 445-454, August.
    4. Deaton, Angus, 1991. "Saving and Liquidity Constraints," Econometrica, Econometric Society, vol. 59(5), pages 1221-1248, September.
    5. Horwich, George, 2000. "Economic Lessons of the Kobe Earthquake," Economic Development and Cultural Change, University of Chicago Press, vol. 48(3), pages 521-542, April.
    6. Kohara, Miki & Ohtake, Fumio & Saito, Makoto, 2002. "A Test of the Full Insurance Hypothesis: The Case of Japan," Journal of the Japanese and International Economies, Elsevier, vol. 16(3), pages 335-352, September.
    7. Townsend, Robert M, 1994. "Risk and Insurance in Village India," Econometrica, Econometric Society, vol. 62(3), pages 539-591, May.
    8. Christopher D. Carroll & Andrew A. Samwick, 1998. "How Important Is Precautionary Saving?," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 410-419, August.
    9. Marjorie Flavin, 1999. "Robust Estimation of the Joint Consumption / Asset Demand Decision," NBER Working Papers 7011, National Bureau of Economic Research, Inc.
    10. Mace, Barbara J, 1991. "Full Insurance in the Presence of Aggregate Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 928-956, October.
    11. Besley, Timothy, 1995. "Savings, credit and insurance," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 3, chapter 36, pages 2123-2207, Elsevier.
    12. Robert M. Townsend, 1995. "Consumption Insurance: An Evaluation of Risk-Bearing Systems in Low-Income Economies," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 83-102, Summer.
    13. Martin Ravallion & Shubham Chaudhuri, 1997. "Risk and Insurance in Village India: Comment," Econometrica, Econometric Society, vol. 65(1), pages 171-184, January.
    14. Altonji, Joseph G & Hayashi, Fumio & Kotlikoff, Laurence J, 1997. "Parental Altruism and Inter Vivos Transfers: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1121-1166, December.
    15. Horioka, Charles Yuji & Watanabe, Wako, 1997. "Why Do People Save? A Micro-Analysis of Motives for Household Saving in Japan," Economic Journal, Royal Economic Society, vol. 107(442), pages 537-552, May.
    16. Coate, Stephen & Ravallion, Martin, 1993. "Reciprocity without commitment : Characterization and performance of informal insurance arrangements," Journal of Development Economics, Elsevier, vol. 40(1), pages 1-24, February.
    17. Hayashi, Fumio & Altonji, Joseph & Kotlikoff, Laurence, 1996. "Risk-Sharing between and within Families," Econometrica, Econometric Society, vol. 64(2), pages 261-294, March.
    18. Takasaki, Yoshito & Barham, Bradford L. & Coomes, Oliver T., 2004. "Risk coping strategies in tropical forests: floods, illnesses, and resource extraction," Environment and Development Economics, Cambridge University Press, vol. 9(2), pages 203-224, May.
    19. Cochrane, John H, 1991. "A Simple Test of Consumption Insurance," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 957-976, October.
    20. Saito, Makoto, 1999. "Dynamic Allocation and Pricing in Incomplete Markets: A Survey," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 17(1), pages 45-75, May.
    21. Froot, Kenneth A., 2001. "The market for catastrophe risk: a clinical examination," Journal of Financial Economics, Elsevier, vol. 60(2-3), pages 529-571, May.
    22. Tullio Jappelli, 1990. "Who is Credit Constrained in the U. S. Economy?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(1), pages 219-234.
    23. Lorenzo Cappellari & Stephen P. Jenkins, 2003. "Multivariate probit regression using simulated maximum likelihood," Stata Journal, StataCorp LP, vol. 3(3), pages 278-294, September.
    24. Caballero, Ricardo J., 1990. "Consumption puzzles and precautionary savings," Journal of Monetary Economics, Elsevier, vol. 25(1), pages 113-136, January.
    25. Marcel Fafchamps, 2003. "Rural Poverty, Risk and Development," Books, Edward Elgar Publishing, number 3127.
    26. Zeckhauser, Richard J, 1996. "The Economics of Catastrophes," Journal of Risk and Uncertainty, Springer, vol. 12(2-3), pages 113-140, May.
    27. Christina Paxson, 1990. "Borrowing Constraints and Portfolio Choice," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(2), pages 535-543.
    28. Zhou, Yanfei, 2003. "Precautionary saving and earnings uncertainty in Japan: A household-level analysis," Journal of the Japanese and International Economies, Elsevier, vol. 17(2), pages 192-212, June.
    29. Brookshire, David S & Thayer. Mark A & Tschirhart, John & Schulze, William D, 1985. "A Test of the Expected Utility Model: Evidence from Earthquake Risks," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 369-389, April.
    30. Eswaran, Mukesh & Kotwal, Ashok, 1989. "Credit as insurance in agrarian economies," Journal of Development Economics, Elsevier, vol. 31(1), pages 37-53, July.
    31. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    32. Anjini Kochar, 1999. "Smoothing Consumption by Smoothing Income: Hours-of-Work Responses to Idiosyncratic Agricultural Shocks in Rural India," The Review of Economics and Statistics, MIT Press, vol. 81(1), pages 50-61, February.
    33. Skidmore, Mark, 2001. "Risk, natural disasters, and household savings in a life cycle model," Japan and the World Economy, Elsevier, vol. 13(1), pages 15-34, January.
    34. Mr. Michael Keen & Mr. Paul K. Freeman & Mr. Muthukumara Mani, 2003. "Dealing with Increased Risk of Natural Disasters: Challenges and Options," IMF Working Papers 2003/197, International Monetary Fund.
    35. Qiang Zhang & Masao Ogaki, 2004. "Decreasing Relative Risk Aversion, Risk Sharing, and the Permanent Income Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 22, pages 421-430, October.
    36. Narayana R. Kocherlakota, 1996. "Implications of Efficient Risk Sharing without Commitment," Review of Economic Studies, Oxford University Press, vol. 63(4), pages 595-609.
    37. Satoshi Shimizutani, 2003. "Income Variability and Consumption-A Full Consumption Insurance Test Using Japanese Micro Data in the 1990s (in Japanese)," Economic Analysis, Economic and Social Research Institute (ESRI), vol. 169, pages 52-68, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. SAWADA Yasuyuki & MASAKI Tatsujiro & NAKATA Hiroyuki & SEKIGUCHI Kunio, 2017. "Natural Disasters: Financial preparedness of corporate Japan," Discussion papers 17014, Research Institute of Economy, Trade and Industry (RIETI).
    2. Yasuyuki Sawada, 2007. "The impact of natural and manmade disasters on household welfare," Agricultural Economics, International Association of Agricultural Economists, vol. 37(s1), pages 59-73, December.
    3. Yasuyuki Sawada & Satoshi Shimizutani, 2007. "Consumption Insurance and Risk-Coping Strategies under Non-Separable Utility: Evidence from the Kobe Earthquake," CARF F-Series CARF-F-106, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    4. Yasuyuki Sawada & Satoshi Shimizutani, 2011. "Changes in durable stocks, portfolio allocation, and consumption expenditure in the aftermath of the Kobe earthquake," Review of Economics of the Household, Springer, vol. 9(4), pages 429-443, December.
    5. Yasuyuki Sawada, 2017. "Disasters, Household Decisions, and Insurance Mechanisms: A Review of Evidence and a Case Study from a Developing Country in Asia," Asian Economic Policy Review, Japan Center for Economic Research, vol. 12(1), pages 18-40, January.
    6. Yasuyuki Sawada & Satoshi Shimizutani, 2008. "How Do People Cope with Natural Disasters? Evidence from the Great Hanshin-Awaji (Kobe) Earthquake in 1995," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(2-3), pages 463-488, March.
    7. Yasuyuki SAWADA & Fauziah ZEN, 2014. "Disaster Management in ASEAN," Working Papers DP-2014-03, Economic Research Institute for ASEAN and East Asia (ERIA).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yasuyuki Sawada, 2007. "The impact of natural and manmade disasters on household welfare," Agricultural Economics, International Association of Agricultural Economists, vol. 37(s1), pages 59-73, December.
    2. SAWADA Yasuyuki & SHIMIZUTANI Satoshi, 2004. "How Do People Cope With Natural Disasters? Evidence from the Great Hanshin-Awaji Earthquake," ESRI Discussion paper series 101, Economic and Social Research Institute (ESRI).
    3. Yasuyuki Sawada & Satoshi Shimizutani, 2007. "Consumption Insurance and Risk-Coping Strategies under Non-Separable Utility: Evidence from the Kobe Earthquake," CIRJE F-Series CIRJE-F-512, CIRJE, Faculty of Economics, University of Tokyo.
    4. Yasuyuki Sawada & Satoshi Shimizutani, 2008. "How Do People Cope with Natural Disasters? Evidence from the Great Hanshin‐Awaji (Kobe) Earthquake in 1995," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(2‐3), pages 463-488, March.
    5. Dubois, Pierre, 2002. "Consommation, partage de risque et assurance informelle : développements théoriques et tests empiriques récents," L'Actualité Economique, Société Canadienne de Science Economique, vol. 78(1), pages 115-149, Mars.
    6. Orazio P. Attanasio & Guglielmo Weber, 2010. "Consumption and Saving: Models of Intertemporal Allocation and Their Implications for Public Policy," Journal of Economic Literature, American Economic Association, vol. 48(3), pages 693-751, September.
    7. Yasuyuki Sawada & Satoshi Shimizutani, 2011. "Changes in durable stocks, portfolio allocation, and consumption expenditure in the aftermath of the Kobe earthquake," Review of Economics of the Household, Springer, vol. 9(4), pages 429-443, December.
    8. Sawada, Yasuyuki & Takasaki, Yoshito, 2017. "Natural Disaster, Poverty, and Development: An Introduction," World Development, Elsevier, vol. 94(C), pages 2-15.
    9. Orazio P. Attanasio, 1998. "Consumption Demand," NBER Working Papers 6466, National Bureau of Economic Research, Inc.
    10. Paul Gertler & David I. Levine & Enrico Moretti, 2009. "Do microfinance programs help families insure consumption against illness?," Health Economics, John Wiley & Sons, Ltd., vol. 18(3), pages 257-273, March.
    11. Fafchamps, Marcel & Lund, Susan, 2003. "Risk-sharing networks in rural Philippines," Journal of Development Economics, Elsevier, vol. 71(2), pages 261-287, August.
    12. Somville, Vincent & Vandewalle, Lore, 2023. "Access to banking, savings and consumption smoothing in rural India," Journal of Public Economics, Elsevier, vol. 223(C).
    13. Jeong-Joon Lee & Yasuyuki Sawada, 2005. "Precautionary Saving under Liquidity Constraints: Evidence from Rural Pakistan (Published in "Journal of Development Economics". )," CARF F-Series CARF-F-051, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    14. Lee, Jeong-Joon & Sawada, Yasuyuki, 2010. "Precautionary saving under liquidity constraints: Evidence from rural Pakistan," Journal of Development Economics, Elsevier, vol. 91(1), pages 77-86, January.
    15. Marcel Fafchamps & Aditya Shrinivas, 2022. "Risk Pooling and Precautionary Saving in Village Economies," NBER Working Papers 30128, National Bureau of Economic Research, Inc.
    16. Levin, Mark (Левин, Марк) & Matrosova, Ksenia (Матросова, Ксения), 2018. "Development and Research of Economic Behavior of Households in Changing Conditions [Разработка И Исследование Экономического Поведения Домохозяйств В Изменяющихся Условиях]," Working Papers 041825, Russian Presidential Academy of National Economy and Public Administration.
    17. Kazianga, Harounan & Udry, Christopher, 2006. "Consumption smoothing? Livestock, insurance and drought in rural Burkina Faso," Journal of Development Economics, Elsevier, vol. 79(2), pages 413-446, April.
    18. Zimmerman, Frederick J. & Carter, Michael R., 2003. "Asset smoothing, consumption smoothing and the reproduction of inequality under risk and subsistence constraints," Journal of Development Economics, Elsevier, vol. 71(2), pages 233-260, August.
    19. Besley, Timothy, 1995. "Savings, credit and insurance," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 3, chapter 36, pages 2123-2207, Elsevier.
    20. Hasna Khemili & Mounir Belloumi, 2018. "Social Security and Fighting Poverty in Tunisia," Economies, MDPI, vol. 6(1), pages 1-17, February.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cfi:fseres:cf019. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/catokjp.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.