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The Political Economy of Natural Disaster Insurance: Lessons from the Failure of a Proposed Compulsory Insurance Scheme in Germany

Reimund Schwarze and Gert Wagner ()

No 620, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: This paper studies the politico-economic reasons for the refusal of a proposed compulsory flood insurance scheme in Germany. It provides the rationale for such scheme and outlines the basic features of a market-orientated design. The main reasons for the political down-turn of this proposal were the misperceived costs of a state guarantee, legal objections against a compulsory insurance, distributional conflicts between the federal government and the Ger-man states (Länder) on the implied administrative costs, and the well-known charity hazard of ad-hoc disaster relief. The focus on pure market solutions proved to be an ineffective strategy for policy advice in this field.

Pages: 19 p.
Date: 2006
New Economics Papers: this item is included in nep-ene, nep-env, nep-ias and nep-pol
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