Behavioral motivations for self-insurance under different disaster risk insurance schemes

Jantsje M. Mol*, W. J.Wouter Botzen, Julia E. Blasch

*Corresponding author for this work

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This paper presents a lab-in-the-field experiment with 2111 Dutch homeowners in floodplain areas to examine the impacts of financial incentives and behavioral motivations for self-insurance under different flood insurance schemes. We experimentally varied the insurance type (mandatory public versus voluntary private) and the availability of a premium discount incentive for investing in flood damage mitigation measures. This set-up allowed us to examine the existence of moral hazard, advantageous selection and the behavioral motivations of individual agents who face these different insurance types, without the selection bias that makes a causal inference from survey studies problematic. The main results show that a premium discount can increase investments in self-insurance under both private and public insurance. Moreover, we find no support for moral hazard in our natural disaster insurance market, but we do find a substantial share of cautious people who invest both in private insurance as well as in self-insurance, indicating advantageous selection. The results have implications for the design of insurance schemes to cope with increasing natural disaster risks.

Original languageEnglish
Pages (from-to)967-991
Number of pages25
JournalJournal of Economic Behavior and Organization
Early online date22 Dec 2018
Publication statusPublished - Dec 2020


  • Behavioral insurance
  • Disaster damage reduction
  • Flood preparedness
  • Homeowners
  • Lab-in-the-field experiment
  • Self-insurance

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