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An econometric analysis of the demand surge effect

Author

Listed:
  • Döhrmann, David
  • Gürtler, Marc
  • Hibbeln, Martin

Abstract

In case of a natural catastrophe there is an increased demand for skilled labor and materials which in turn leads to significant price increases that should be taken into account in the forecast of catastrophe losses. Such price effects are referred to as Demand Surge effects. The paper at hand presents an extensive econometric analysis and modeling of the Demand Surge effect. We find that Demand Surge is positively influenced by the total amount of repair work, by alternative catastrophes in the same region in close temporal proximity, and by a higher amount of insurance claims per event. Furthermore, the Demand Surge effect is more pronounced if the construction sector is in a growth stage. In contrast, a higher capacity of the construction sector has a restraining effect on Demand Surge. In addition, if we restrict the data to very severe catastrophes, we observe a saturation effect according to which a wage increase for building services before a catastrophe reduces the Demand Surge effect.

Suggested Citation

  • Döhrmann, David & Gürtler, Marc & Hibbeln, Martin, 2013. "An econometric analysis of the demand surge effect," Working Papers IF44V1, Technische Universität Braunschweig, Institute of Finance.
  • Handle: RePEc:zbw:tbsifw:if44v1
    DOI: 10.2139/ssrn.2222041
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    More about this item

    Keywords

    demand surge; natural disasters; empirical analysis; insurance;
    All these keywords.

    JEL classification:

    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • R15 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Econometric and Input-Output Models; Other Methods
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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