IDEAS home Printed from https://ideas.repec.org/a/kap/enreec/v54y2013i2p179-200.html
   My bibliography  Save this article

Uncertainty of Governmental Relief and the Crowding out of Flood Insurance

Author

Listed:
  • Paul Raschky

    ()

  • Reimund Schwarze

    ()

  • Manijeh Schwindt

    ()

  • Ferdinand Zahn

    ()

Abstract

This paper discusses the problem of crowding out of insurance by co-existing governmental relief programs—the so-called ‘charity hazard’—in the context of different institutional schemes of governmental disaster relief in Austria and Germany. We test empirically whether an assured partial relief scheme (as in Austria) drives a stronger crowding out of private insurance than a scheme promising full relief which is subject to ad-hoc political decision making (as in Germany). Our general finding is that the institutional design of governmental relief programs significantly affects the demand for private natural hazard insurance. Copyright Springer Science+Business Media B.V. 2013

Suggested Citation

  • Paul Raschky & Reimund Schwarze & Manijeh Schwindt & Ferdinand Zahn, 2013. "Uncertainty of Governmental Relief and the Crowding out of Flood Insurance," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 54(2), pages 179-200, February.
  • Handle: RePEc:kap:enreec:v:54:y:2013:i:2:p:179-200
    DOI: 10.1007/s10640-012-9586-y
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s10640-012-9586-y
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Marielle Brunette & Laure Cabantous & Stéphane Couture & Anne Stenger, 2008. "Insurance Demand for Disaster-type Risks and the Separation of Attitudes toward Risk and Ambiguity: an Experimental Study," Working Papers - Cahiers du LEF 2008-05, Laboratoire d'Economie Forestiere, AgroParisTech-INRA.
    2. Reimund Schwarze & Gert G. Wagner, 2004. "In the Aftermath of Dresden: New Directions in German Flood Insurance," The Geneva Papers on Risk and Insurance, The International Association for the Study of Insurance Economics, vol. 29(2), pages 154-168, April.
    3. Powell, James L, 1986. "Symmetrically Trimmed Least Squares Estimation for Tobit Models," Econometrica, Econometric Society, vol. 54(6), pages 1435-1460, November.
    4. Coate, Stephen, 1995. "Altruism, the Samaritan's Dilemma, and Government Transfer Policy," American Economic Review, American Economic Association, vol. 85(1), pages 46-57, March.
    5. Paul Raschky & Hannelore Weck-Hannemann, 2007. "Charity hazard - A real hazard to natural disaster insurance," Working Papers 2007-04, Faculty of Economics and Statistics, University of Innsbruck.
    6. Khan, Shakeeb & Powell, James L., 2001. "Two-step estimation of semiparametric censored regression models," Journal of Econometrics, Elsevier, vol. 103(1-2), pages 73-110, July.
    7. Botzen, W.J.W. & Aerts, J.C.J.H. & van den Bergh, J.C.J.M., 2009. "Willingness of homeowners to mitigate climate risk through insurance," Ecological Economics, Elsevier, vol. 68(8-9), pages 2265-2277, June.
    8. Laura O. Taylor & Ronald G. Cummings, 1999. "Unbiased Value Estimates for Environmental Goods: A Cheap Talk Design for the Contingent Valuation Method," American Economic Review, American Economic Association, vol. 89(3), pages 649-665, June.
    9. Browne, Mark J & Hoyt, Robert E, 2000. "The Demand for Flood Insurance: Empirical Evidence," Journal of Risk and Uncertainty, Springer, vol. 20(3), pages 291-306, May.
    10. repec:feb:framed:0073 is not listed on IDEAS
    11. Thomas A. Garrett & Russell S. Sobel, 2003. "The Political Economy of FEMA Disaster Payments," Economic Inquiry, Western Economic Association International, vol. 41(3), pages 496-509, July.
    12. Richard Carson & Nicholas Flores & Norman Meade, 2001. "Contingent Valuation: Controversies and Evidence," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 19(2), pages 173-210, June.
    13. Bum J. Kim & Harris Schlesinger, 2005. "Adverse Selection in an Insurance Market With Government-Guaranteed Subsistence Levels," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 72(1), pages 61-75.
    14. Kaplow, Louis, 1991. "Incentives and Government Relief for Risk," Journal of Risk and Uncertainty, Springer, vol. 4(2), pages 167-175, April.
    15. Petrolia, Daniel R., 2016. "Risk preferences, risk perceptions, and risky food," Food Policy, Elsevier, vol. 64(C), pages 37-48.
    16. Lanny Arvan & David Nickerson, 2006. "Private Investment, Public Aid and Endogenous Divergence in the Evolution of Urban Neighborhoods," The Journal of Real Estate Finance and Economics, Springer, vol. 32(1), pages 83-100, February.
    17. Kunreuther, Howard C. & Michel-Kerjan, Erwann O., 2011. "At War with the Weather: Managing Large-Scale Risks in a New Era of Catastrophes," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262516543, May.
    18. Mary Kelly & Anne E. Kleffner, 2003. "Optimal Loss Mitigation and Contract Design," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 70(1), pages 53-72.
    19. Ronald G. Cummings & Laura Osborne Taylor, 1998. "Does Realism Matter in Contingent Valuation Surveys?," Land Economics, University of Wisconsin Press, vol. 74(2), pages 203-215.
    20. Camerer, Colin & Weber, Martin, 1992. "Recent Developments in Modeling Preferences: Uncertainty and Ambiguity," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 325-370, October.
    21. 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.
    22. Erwann O. Michel-Kerjan & Carolyn Kousky, 2010. "Come Rain or Shine: Evidence on Flood Insurance Purchases in Florida," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 77(2), pages 369-397.
    23. Bradley Jorgensen & Geoffrey Syme & Brian Bishop & Blair Nancarrow, 1999. "Protest Responses in Contingent Valuation," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 14(1), pages 131-150, July.
    24. Lewis, Tracy & Nickerson, David, 1989. "Self-insurance against natural disasters," Journal of Environmental Economics and Management, Elsevier, vol. 16(3), pages 209-223, May.
    25. Patricia Champ & Richard Bishop, 2001. "Donation Payment Mechanisms and Contingent Valuation: An Empirical Study of Hypothetical Bias," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 19(4), pages 383-402, August.
    26. Amemiya, Takeshi, 1984. "Tobit models: A survey," Journal of Econometrics, Elsevier, vol. 24(1-2), pages 3-61.
    27. John A. List, 2001. "Do Explicit Warnings Eliminate the Hypothetical Bias in Elicitation Procedures? Evidence from Field Auctions for Sportscards," American Economic Review, American Economic Association, vol. 91(5), pages 1498-1507, December.
    28. Howard Kunreuther & Mark Pauly, 2004. "Neglecting Disaster: Why Don't People Insure Against Large Losses?," Journal of Risk and Uncertainty, Springer, vol. 28(1), pages 5-21, January.
    29. Skeels, Christopher L. & Vella, Francis, 1999. "A Monte Carlo investigation of the sampling behavior of conditional moment tests in Tobit and Probit models," Journal of Econometrics, Elsevier, vol. 92(2), pages 275-294, October.
    30. David Aadland & Arthur J. Caplan, 2003. "Willingness to Pay for Curbside Recycling with Detection and Mitigation of Hypothetical Bias," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(2), pages 492-502.
    31. Kenneth Y. Chay & James L. Powell, 2001. "Semiparametric Censored Regression Models," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 29-42, Fall.
    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. repec:eee:jeeman:v:87:y:2018:i:c:p:150-164 is not listed on IDEAS
    2. Goeschl, Timo & Managi, Shunsuke, 2017. "Public in-kind relief and private self-insurance," Working Papers 0633, University of Heidelberg, Department of Economics.
    3. Paul A. Raschky & Manijeh Schwindt, 2016. "Aid, Catastrophes and the Samaritan's Dilemma," Economica, London School of Economics and Political Science, vol. 83(332), pages 624-645, October.
    4. Alex Y. Lo, 2013. "Household Preference and Financial Commitment to Flood Insurance in South-East Queensland," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 46(2), pages 160-175, June.
    5. Andor, Mark & Osberghaus, Daniel & Simora, Michael, 2017. "Natural disasters and governmental aid: Is there a charity hazard?," ZEW Discussion Papers 17-065, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    6. Sommarat Chantarat & Sirikarn Lertamphainont & Krislert Samphantharak, 2016. "Floods and Farmers: Evidence from the Field in Thailand," PIER Discussion Papers 40., Puey Ungphakorn Institute for Economic Research, revised Aug 2016.
    7. Achtnicht, Martin & Osberghaus, Daniel, 2016. "The demand for index-based flood insurance in a high-income country," ZEW Discussion Papers 16-051, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    8. Gawel, Erik & Heuson, Clemens & Lehmann, Paul, 2012. "Efficient public adaptation to climate change: An investigation of drivers and barriers from a Public Choice perspective," UFZ Discussion Papers 14/2012, Helmholtz Centre for Environmental Research (UFZ), Division of Social Sciences (ÖKUS).
    9. Osberghaus, Daniel, 2015. "The determinants of private flood mitigation measures in Germany — Evidence from a nationwide survey," Ecological Economics, Elsevier, vol. 110(C), pages 36-50.
    10. Richert, Claire & Erdlenbruch, Katrin & Figuières, Charles, 2017. "The determinants of households' flood mitigation decisions in France - on the possibility of feedback effects from past investments," Ecological Economics, Elsevier, vol. 131(C), pages 342-352.
    11. Paul A. RASCHKY, 2013. "Estimating the Effects of West Sumatra Public Asset Insurance Program on Short-Term Recovery after the September 2009 Earthquake," Working Papers DP-2013-35, Economic Research Institute for ASEAN and East Asia (ERIA).
    12. Jaspersen, Johannes G. & Richter, Andreas, 2015. "The wealth effects of premium subsidies on moral hazard in insurance markets," European Economic Review, Elsevier, vol. 77(C), pages 139-153.

    More about this item

    Keywords

    Insurance demand; Governmental relief; Natural hazards; D78; D81; G22; Q54;

    JEL classification:

    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • 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

    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:kap:enreec:v:54:y:2013:i:2:p:179-200. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla) or (Rebekah McClure). General contact details of provider: http://www.springer.com .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.