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Consumption Insurance and Risk-Coping Strategies under Non-Separable Utility: Evidence from the Kobe Earthquake

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  • Yasuyuki Sawada

    (Faculty of Economics, University of Tokyo)

  • Satoshi Shimizutani

    (Institute for International Policy Studies(IIPS))

Abstract

Using a unique household-level dataset on the situation after the Kobe earthquake in 1995, we test the full consumption risk sharing hypothesis, relaxing the separability assumption, and examine households' simultaneous choice of risk coping measures. Using multivariate probit estimations, we find that the full consumption insurance hypothesis is strongly rejected and our results indicate that households' utility across different expenditure items is not separable. As for households' choice of risk-coping measures, households borrowed extensively against housing damage, but relied on dissaving to cope with smaller asset damage, implying a hierarchy of risk-coping measures from dissaving to borrowing.

Suggested Citation

  • 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.
    • Handle: RePEc:tky:fseres:2007cf512
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    References listed on IDEAS

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    1. Collective Disasters and Individual Responsibility: Lessons from the Kobe earthquake
      by Frances Woolley in Worthwhile Canadian Initiative on 2011-04-27 21:24:02

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    2. TAMURA Sakuya & SAWADA Yasuyuki, 2009. "Consumption Insurance against Unforeseen Epidemics:The Case of Avian Influenza in Vietnam," Discussion papers 09023, Research Institute of Economy, Trade and Industry (RIETI).

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