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Estimating the effects of risk transfer mechanisms against floods in Europe and U.S.A.: A dynamic panel approach

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  • Paul Raschky

Abstract

An analysis of the effects of natural hazards on society does not solely depend on a region's topographic or climatic exposure to natural processes, but the region's institutional resilience to natural processes that ultimately determines whether natural processes result in a natural hazard or not. An appropriate method for an international institutional comparison in the field of natural hazard management is still missing. The focus in this paper is on the institutional comparison of societal risk transfer mechanisms mitigating the effects disasters. Dynamic panel estimates using growth data from a) 199 European regions (NUTSII) between 1990-2004 and b) 3.050 U.S. counties between 1970-2003 reveal a significant negative impact of historical flood events on regional economic development. The application of GIS-data on the spatial distribution of flood events further allows to control for a regions exposure to floods. In the short run, a major flood event in a European region reduces the regional GDP by 0.4%-0.6%; an average flood event in the U.S.A reduces the personal income by 0.3%-0.4%. Mandatory insurance regimes in Europe absorb the negative short-run effect of a flood, while the National Flood Insurance Program (NFIP) in the U.S.A. mitigate the effects of a flood by about 50%. The results provide empirical foundation for the proposition that ex ante risk transfer policies are more efficient than ex post disaster relief.

Suggested Citation

  • Paul Raschky, 2007. "Estimating the effects of risk transfer mechanisms against floods in Europe and U.S.A.: A dynamic panel approach," Working Papers 2007-05, Faculty of Economics and Statistics, Universität Innsbruck.
    • Handle: RePEc:inn:wpaper:2007-05
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    Cited by:

    1. Paul A. Raschky & Manijeh Schwindt & Reimund Schwarze & Hannelore Weck-Hannemann, 2008. "Risikotransfersysteme für Naturkatastrophen in Deutschland, Österreich und der Schweiz: ein theoretischer und empirischer Vergleich," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 77(4), pages 53-68.
    2. Paul A. Raschky & Hannelore Weck-Hannemann, "undated". "Who is going to save us now? Bureaucrats, Politicians and Risky Tasks," Working Papers 2007-29, Faculty of Economics and Statistics, Universität Innsbruck.

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    More about this item

    Keywords

    Natural hazards; Growth; Insurance; Dynamic Panel GMM;
    All these keywords.

    JEL classification:

    • 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
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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