Natural disasters and governmental aid: Is there a charity hazard?

Mark Andor, Daniel Osberghaus and Michael Simora

No 17-065, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: In the aftermath of natural disasters, governments frequently provide financial aid for affected households. This policy can have adverse effects if individuals anticipate it and forgo private precaution measures. While theoretical literature unequivocally suggests this so called "charity hazard", empirical studies yield ambiguous results. Drawing on rich survey data from German homeowners, we analyze charity hazard for different flood precaution strategies, namely insurance uptake and non-financial protection measures, and different flood risk areas. Our results indicate a substantial charity hazard in the insurance market for individuals residing in flood-prone areas. In contrast, we find a positive correlation between governmental aid and non-financial protection measures. Moreover, our results suggest that insurance and non-financial protection measures are rather complements than substitutes. Finally, we provide suggestive evidence that status-quo bias might play an important role for insurance uptake.

Keywords: Adaptation; Flood Protection; Flood Insurance; Objective Flood Risk; Charity Hazard (search for similar items in EconPapers)
JEL-codes: C35 Q54 R22 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/172325/1/1009187961.pdf (application/pdf)

Related works:
Journal Article: Natural Disasters and Governmental Aid: Is there a Charity Hazard? (2020)
Working Paper: Natural disasters and governmental aid: Is there a charity hazard? (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:17065

Access Statistics for this paper

More papers in ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().