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Social interactions and households’ flood insurance decisions

Zhongchen Hu

Journal of Financial Economics, 2022, vol. 144, issue 2, 414-432

Abstract: Flooding is the most costly natural disaster faced by US households, yet policymakers are puzzled by the low take-up rates for flood insurance. Leveraging novel transaction-level data, this paper studies the influence of social interactions on households’ insurance decisions. I show that households increase flood insurance purchases by 1–5 percent when their geographically distant friends are exposed to flooding events or to campaigns for flood insurance. These exogenous shocks to far-away friends should not affect local households’ own insurance decisions except through peer effects. I provide evidence suggesting that social interactions facilitate learning through information dissemination and attention triggering.

Keywords: Flood insurance; Social learning; Peer effects; Social networks (search for similar items in EconPapers)
JEL-codes: D12 D83 D84 G22 Q54 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.jfineco.2022.02.004

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