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How Do Natural Disasters Affect Saving Behavior?

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  • Victor STEPHANE

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Abstract

The aim of this paper is to investigate how being exposed to natural disasters affects the long term quantity of capital held by households. Natural hazards affect households’ capital accumulation through the destruction of assets and income but also through their impact on saving behavior. Based on a structural model, we study this latter effect. First, we quantify the ex-ante effect of volcanic risk on investment. Then, we investigate how temporary changes in risk perception after an eruption affect the recovery process. Our results show that the ex-ante effect is negative and relatively strong with respect to eruptions damages. In addition, over-estimating the probability of future eruptions after a shock, slows down the recovery process, has long lasting effects, and may be responsible for a subsequent share of economic losses mentioned in the literature. Overall, changes in saving behavior account for half of the total cost incurred by volcanic risk.

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  • Victor STEPHANE, 2016. "How Do Natural Disasters Affect Saving Behavior?," Working Papers 201621, CERDI.
  • Handle: RePEc:cdi:wpaper:1834
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    More about this item

    Keywords

    Natural Disaster; Saving; Risk; Structural estimation.;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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