Charity hazard - A real hazard to natural disaster insurance
After the flooding in 2002 European governments provided billions of Euros of financial assistance to their citizens. Although there is no doubt that solidarity and some sort of assistance is reasonable, the question arises why these damages were not sufficiently insured. One explanation why individuals reject to obtain insurance cover against natural hazards is that they anticipate governmental and private aid. This problem became to be known as "charity hazard". The present paper gives an economic analysis of the institutional arrangements on the market for natural disaster insurances focusing on imperfections caused by governmental financial relief. It provides a theoretical explanation why charity hazard is a problem on the market for natural disaster insurances, in the way that it acts as an obstacle for the proper diffusion and therefore the establishment of natural hazard insurances. This paper provides a review of the scientific discussion on charity hazard, provides a theoretical analysis and points out the existing empirical problems regarding this issue.
|Date of creation:||Mar 2007|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.uibk.ac.at/fakultaeten/volkswirtschaft_und_statistik/index.html.en
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ehrlich, Isaac & Becker, Gary S, 1972. "Market Insurance, Self-Insurance, and Self-Protection," Journal of Political Economy, University of Chicago Press, vol. 80(4), pages 623-48, July-Aug..
- Howard Kunreuther, 2001. "Mitigation and Financial Risk Management for Natural Hazards*," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan, vol. 26(2), pages 277-296, April.
- Schwarze, Reimund & Wagner, Gert G., 2005. "Versicherungspflicht gegen Elementarschäden: Ein Lehrstück für Probleme der volkswirtschaftlichen Politikberatung," Discussion Papers 2005/4, Technische Universität Berlin, School of Economics and Management.
- Timothy Besley & Robin Burgess, 2002.
"The Political Economy Of Government Responsiveness: Theory And Evidence From India,"
The Quarterly Journal of Economics,
MIT Press, vol. 117(4), pages 1415-1451, November.
- Timothy Besley & Robin Burgess, 2000. "The political economy of government responsiveness: theory and evidence from India," LSE Research Online Documents on Economics 2308, London School of Economics and Political Science, LSE Library.
- Timothy Besley & Robin Burgess, 2000. "The Political Economy of Government Responsiveness: Theory and Evidence from India," STICERD - Development Economics Papers - From 2008 this series has been superseded by Economic Organisation and Public Policy Discussion Papers 28, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
- Besley, Timothy J. & Burgess, Robin, 2001. "The Political Economy of Government Responsiveness: Theory and Evidence from India," CEPR Discussion Papers 2721, C.E.P.R. Discussion Papers.
- Brookshire, David S, et al, 1985. "A Test of the Expected Utility Model: Evidence from Earthquake Risks," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 369-89, April.
- 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.
- Bum J. Kim & Harris Schlesinger, 2004. "Adverse Selection in an Insurance Market with Government-Guaranteed Subsistence Levels," CESifo Working Paper Series 1217, CESifo Group Munich.
- William Shughart, 2006. "Katrinanomics: The politics and economics of disaster relief," Public Choice, Springer, vol. 127(1), pages 31-53, April.
- von Ungern-Sternberg, Thomas, 2004. "Efficient Monopolies: The Limits of Competition in the European Property Insurance Market," OUP Catalogue, Oxford University Press, number 9780199268818, March.
- Reimund Schwarze & Gert G Wagner, 2004.
"In the Aftermath of Dresden: New Directions in German Flood Insurance,"
The Geneva Papers on Risk and Insurance - Issues and Practice,
Palgrave Macmillan, vol. 29(2), pages 154-168, April.
- 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, 04.
- 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.
- Thomas A. Garrett & Russell S. Sobel, 2003.
"The Political Economy of FEMA Disaster Payments,"
Western Economic Association International, vol. 41(3), pages 496-509, July.
- Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
- J. Stripple, 1998. "Securitizing the Risks of Climate Change. Institutional Innovations in the Insurance of Catastrophic Risks," Working Papers ir98098, International Institute for Applied Systems Analysis.
- Priest, George L, 1996. "The Government, the Market, and the Problem of Catastrophic Loss," Journal of Risk and Uncertainty, Springer, vol. 12(2-3), pages 219-37, May.
- Marcel A.P.M. van Asseldonk & Miranda P.M. Meuwissen & Ruud B.M. Huirne, 2002. "Belief in Disaster Relief and the Demand for a Public-Private Insurance Program," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 24(1), pages 196-207.
- Lewis, Tracy & Nickerson, David, 1989. "Self-insurance against natural disasters," Journal of Environmental Economics and Management, Elsevier, vol. 16(3), pages 209-223, May.
- Russell Sobel & Peter Leeson, 2006. "Government's response to Hurricane Katrina: A public choice analysis," Public Choice, Springer, vol. 127(1), pages 55-73, April.
- 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.
- 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.
When requesting a correction, please mention this item's handle: RePEc:inn:wpaper:2007-04. 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: (Janette Walde)
If references are entirely missing, you can add them using this form.