The decision to insure against forest fire risk: An econometric analysis combining hypothetical and real data

Marielle Brunette (), Stéphane Couture, Jérôme Foncel () and Serge Garcia
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Jérôme Foncel: Université de Lille, LEM - Lille économie management - UMR 9221 - UA - Université d'Artois - UCL - Université catholique de Lille - Université de Lille - CNRS - Centre National de la Recherche Scientifique

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Abstract: Storm and fire are the two main natural hazards in Europe. They correspond to high costs for forest owners. However, heterogeneous behaviors in terms of forest insurance demand arise across Europe. In this paper, we focus on private forest owners' insurance decisions against fire. We collected data on: i) willingness-to-pay (WTP) for insurance based on hypothetical scenarios incorporating ambiguous risks; ii) real data about insurance decisions and the individual characteristics. We simultaneously estimated real insurance and WTP using a selection equation for zero WTP that we explain by protest responses against insurance under expected utility. We found that real insurance provision is relevant to explain positive WTP, and that unobservable determinants of insurance may explain protest responses. These results confirm the interest of including observed decisions to analyze preferences towards insurance. One additional result is that facing ambiguous risk increases the WTP for insurance.

Keywords: Forest fire; Insurance decision; Ambiguity; Corner solution; Willigness to pay; Protest response (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (3)

Published in Geneva Papers on Risk and Insurance - Issues and Practice, 2019, 45, pp.111-133. ⟨10.1057/s41288-019-00146-6⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02288151

DOI: 10.1057/s41288-019-00146-6

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