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Behavioral motivations for self-insurance under different disaster risk insurance schemes

Jantsje M. Mol, Wouter Botzen and Julia E. Blasch

Journal of Economic Behavior & Organization, 2020, vol. 180, issue C, 967-991

Abstract: This paper presents a lab-in-the-field experiment with 2111 Dutch homeowners in floodplain areas to examine the impacts of financial incentives and behavioral motivations for self-insurance under different flood insurance schemes. We experimentally varied the insurance type (mandatory public versus voluntary private) and the availability of a premium discount incentive for investing in flood damage mitigation measures. This set-up allowed us to examine the existence of moral hazard, advantageous selection and the behavioral motivations of individual agents who face these different insurance types, without the selection bias that makes a causal inference from survey studies problematic. The main results show that a premium discount can increase investments in self-insurance under both private and public insurance. Moreover, we find no support for moral hazard in our natural disaster insurance market, but we do find a substantial share of cautious people who invest both in private insurance as well as in self-insurance, indicating advantageous selection. The results have implications for the design of insurance schemes to cope with increasing natural disaster risks.

Keywords: Behavioral insurance; Self-insurance; Homeowners; Lab-in-the-field experiment; Disaster damage reduction; Flood preparedness (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.jebo.2018.12.007

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Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

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Handle: RePEc:eee:jeborg:v:180:y:2020:i:c:p:967-991