Abstract
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 language | English |
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Pages (from-to) | 967-991 |
Number of pages | 25 |
Journal | Journal of Economic Behavior and Organization |
Volume | 180 |
Early online date | 22 Dec 2018 |
DOIs | |
Publication status | Published - Dec 2020 |
Funding
We would like to thank conference participants at ESA World Meeting 2018 and TIBER 2018 for valuable comments. This research has received financial support from the Netherlands Organisation for Scientific Research (NWO) VIDI ( 452.14.005 ) grant. Appendix A
Funders | Funder number |
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Nederlandse Organisatie voor Wetenschappelijk Onderzoek | 452.14.005 |
Ecological Society of Australia |
Keywords
- Behavioral insurance
- Disaster damage reduction
- Flood preparedness
- Homeowners
- Lab-in-the-field experiment
- Self-insurance