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

  • Yasuyuki Sawada

    (Faculty of Economics, University of Tokyo)

  • Satoshi Shimizutani

    (Institute of Economic Research, Hitotsubashi University)

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.

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Paper provided by Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo in its series CARF F-Series with number CARF-F-019.

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Length: 36 pages
Date of creation: Jan 2005
Date of revision:
Handle: RePEc:cfi:fseres:cf019
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