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

  • Yasuyuki Sawada

    (Faculty of Economics, University of Tokyo)

  • Satoshi Shimizutani

    (Institute for International Policy Studies(IIPS))

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.

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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-106.

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Length: 34 pages
Date of creation: Sep 2007
Date of revision:
Handle: RePEc:cfi:fseres:cf106
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  7. Yasuyuki Sawada & Satoshi Shimizutani, 2007. "Consumption insurance against natural disasters: evidence from the Great Hanshin-Awaji (Kobe) earthquake," Applied Economics Letters, Taylor & Francis Journals, vol. 14(4), pages 303-306.
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