How Do Natural Disasters Affect Saving Behavior?

Victor Stephane ()

No 201621, Working Papers from CERDI

Abstract: The aim of this paper is to investigate how being exposed to natural disasters affects the long term quantity of capital held by households. Natural hazards affect households’ capital accumulation through the destruction of assets and income but also through their impact on saving behavior. Based on a structural model, we study this latter effect. First, we quantify the ex-ante effect of volcanic risk on investment. Then, we investigate how temporary changes in risk perception after an eruption affect the recovery process. Our results show that the ex-ante effect is negative and relatively strong with respect to eruptions damages. In addition, over-estimating the probability of future eruptions after a shock, slows down the recovery process, has long lasting effects, and may be responsible for a subsequent share of economic losses mentioned in the literature. Overall, changes in saving behavior account for half of the total cost incurred by volcanic risk.

Keywords: Natural Disaster; Saving; Risk; Structural estimation. (search for similar items in EconPapers)
JEL-codes: C51 D81 D91 O12 Q54 (search for similar items in EconPapers)
Pages: 27
Date: 2016-12
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Working Paper: How Do Natural Disasters Affect Saving Behavior? (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:cdi:wpaper:1834

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