Learning about an Infrequent Event: Evidence from Flood Insurance Take-Up in the United States

Justin Gallagher

American Economic Journal: Applied Economics, 2014, vol. 6, issue 3, 206-33

Abstract: I examine the learning process that economic agents use to update their expectation of an uncertain and infrequently observed event. I use a new nation-wide panel dataset of large regional floods and flood insurance policies to show that insurance take-up spikes the year after a flood and then steadily declines to baseline. Residents in nonflooded communities in the same television media market increase take-up at one-third the rate of flooded communities. I find that insurance take-up is most consistent with a Bayesian learning model that allows for forgetting or incomplete information about past floods.

JEL-codes: D12 D83 D84 G22 Q54 (search for similar items in EconPapers)
Date: 2014
Note: DOI: 10.1257/app.6.3.206
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Citations: View citations in EconPapers (259)

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