Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/172325 
Year of Publication: 
2017
Series/Report no.: 
ZEW Discussion Papers No. 17-065
Publisher: 
Zentrum für Europäische Wirtschaftsforschung (ZEW), Mannheim
Abstract: 
In the aftermath of natural disasters, governments frequently provide financial aid for affected households. This policy can have adverse effects if individuals anticipate it and forgo private precaution measures. While theoretical literature unequivocally suggests this so called "charity hazard", empirical studies yield ambiguous results. Drawing on rich survey data from German homeowners, we analyze charity hazard for different flood precaution strategies, namely insurance uptake and non-financial protection measures, and different flood risk areas. Our results indicate a substantial charity hazard in the insurance market for individuals residing in flood-prone areas. In contrast, we find a positive correlation between governmental aid and non-financial protection measures. Moreover, our results suggest that insurance and non-financial protection measures are rather complements than substitutes. Finally, we provide suggestive evidence that status-quo bias might play an important role for insurance uptake.
Subjects: 
Adaptation
Flood Protection
Flood Insurance
Objective Flood Risk
Charity Hazard
JEL: 
Q54
C35
R22
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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