Natural Disasters and Governmental Aid: Is There a Charity Hazard?

Demski

2019

Climatic Change

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It has been postulated that personal experience of climate change-related weather events may reduce the psychological distance to climate change and trigger engagement in climate protection measures. We use a novel longitudinal dataset on revealed household behavior and insured damage data to re-examine this relationship, which has mostly been studied by cross-sectional and self-reported data. Using a difference-in-differences estimator, we assess the causal effect of experiencing financial damage from the 2013 floods in Germany on the interest for renewable energy tariffs in online power portals, which we take as a proxy for engagement in climate protection. The results broadly confirm the expected positive effect of flood experience on climate engagement, but there are important non-linear effects. Most notably, the effect drops to zero if damage is very high meaning the causal effect of flood experience on interest in green energy holds only for moderately affected regions. One explanation for this inverted U-shaped effect is that high flood damage may constrain the available budget for costly climate protection, due to high recovery and reconstruction costs. We also suggest a number of psychological mechanisms that may play a role in explaining this non-linear effect, for example nonprotective responses such as denial and fatalism if damage is high. When supporting private climate engagement, policymakers should not rely on a motivating effect of damage experience, but should acknowledge the economic and psychological limitations, especially of severely flood-affected households.

Section: Treatment Variable: Insured Flood Damagementioning

confidence: 99%

The causal effect of flood experience on climate engagement: evidence from search requests for green electricity

Demski

2019

Climatic Change

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“…As flood insurance is not mandatory but the risk of extreme weather events is increasing, the issue of low insurance penetration is becoming more pressing and politically relevant. In the aftermath of recent major flood events significant governmental aid was provided to noninsured households (Andor, Osberghaus, & Simora, 2020), which may have increased the perception that private precaution is not necessary. Moreover, many households consider themselves to be insured even though they are not (Osberghaus, 2015).…”

Section: Flood Risk Management and Awareness Campaigns In Germanymentioning

confidence: 99%

The Effectiveness of a Large‐Scale Flood Risk Awareness Campaign: Evidence from Two Panel Data Sets

Hinrichs

2020

Risk Analysis

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In the context of integrated flood risk management, governments and public agencies aim to strengthen flood risk reduction and insurance at the household level. They often employ awareness campaigns in order to educate the public about flood risk and possible coping strategies. However, the effectiveness of these awareness campaigns has hardly been examined empirically, and the available analyses come to ambiguous conclusions. Evaluations based on longitudinal data of actual household behavior are missing. In this study, we perform two independent empirical analyses to assess whether a large‐scale awareness campaign in Germany affected private flood protection or insurance behavior. We thereby exploit the fact that different federal states initiated the campaign at different points in time between 2009 and 2017. In the first analysis, we use a longitudinal data set of a national sample of 6,729 household heads in the years 2012 and 2014 and focus on three federal states that launched the campaign in 2013. In the second analysis, we use flood damage and insurance penetration data at the federal state level from 2002 to 2018 (N = 256). Based on a fixed effects difference‐in‐differences estimator, we do not find that the campaign had a significant effect on households’ behaviors, damage, or insurance penetration. The results show that large‐scale flood risk awareness campaigns, as they are currently conducted in many countries, have a limited effectiveness in terms of strengthening actual flood protection or insurance behavior of households.

“…First, private actors may refrain from costly insurance because they expect financial relief payments from the government or charity organizations in case a disaster hits (which is referred to as "charity hazard", see Andor et al 2020, Raschky et al 2013, Raschky and Weck-Hannemann 2007. Indeed, this expectation is grounded on experience.…”

Section: Background and Introductionmentioning

confidence: 99%

“…We base our analysis on the existing literature on (1) charity hazard in natural disaster insurance markets and (2) loss experience effects in insurance decisions. Regarding charity hazard, the disincentive to privately insure when expecting relief payments has been postulated theoretically (Buchanan 1975;Coate 1995) and tested empirically (e.g., Davlasheridze et al 2019;Kousky et al 2018; for a comprehensive review of the empirical literature, see Andor et al 2020). While the theoretical literature unanimously predicts a negative effect of compensation on insurance and other precautionary measures, the findings in the empirical literature are more ambiguous.…”

Section: Background and Introductionmentioning

confidence: 99%

How do different compensation schemes and loss experience affect insurance decisions? Experimental evidence from two independent and heterogeneous samples

Reif²

2021

Ecological Economics

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