Moral hazard in natural disaster insurance markets: Empirical evidence from Germany and the United States

Paul Hudson, W. J.Wouter Botzen, Jeffrey Czajkowski, Heidi Kreibich

Research output: Contribution to journalArticlepeer-review

Abstract

Moral hazard in natural disaster insurance markets results in policyholders preparing less, increasing the risk they face. However, moral hazard may not arise, due to high risk aversion or market context. We study the relationship between disaster risk reduction and insurance coverage to assess the presence of moral hazard for two different natural hazards, using four econometric models on survey data from Germany and the United States. The results show that moral hazard is absent. Nevertheless, adverse risk selection may be present. This has significant policy relevance such as opportunities for strengthening the link between insurance and risk reduction measures.

Original languageEnglish
Pages (from-to)179-208
Number of pages30
JournalLand Economics
Volume93
Issue number2
DOIs
Publication statusPublished - 1 May 2017

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© 2017 by the Board of Regents of the University of Wisconsin System.

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