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Uncertainty of Governmental Relief and the Crowding out of Flood Insurance

Abstract

This paper discusses the problem of crowding out of insurance by co-existing governmental relief programs—the so-called ‘charity hazard’—in the context of different institutional schemes of governmental disaster relief in Austria and Germany. We test empirically whether an assured partial relief scheme (as in Austria) drives a stronger crowding out of private insurance than a scheme promising full relief which is subject to ad-hoc political decision making (as in Germany). Our general finding is that the institutional design of governmental relief programs significantly affects the demand for private natural hazard insurance.

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Correspondence to Paul A. Raschky.

Additional information

We would like to thank seminar participants at the Universities of Innsbruck and Zurich, Andrea Leiter, Michael Pfaffermayr, as well as the editor and one anonymous referee, for valuable discussions and helpful comments. An earlier version of this paper originated as part of the project “Alternative Finanzierungs- und Versicherungslösungen” at the alpS-Center for Natural Hazard Management in Innsbruck. The project received financial support from the Präventionsstiftung der Kantonalen Gebäudeversicherungen Schweiz.

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Raschky, P.A., Schwarze, R., Schwindt, M. et al. Uncertainty of Governmental Relief and the Crowding out of Flood Insurance. Environ Resource Econ 54, 179–200 (2013). https://doi.org/10.1007/s10640-012-9586-y

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  • DOI: https://doi.org/10.1007/s10640-012-9586-y

Keywords

  • Insurance demand
  • Governmental relief
  • Natural hazards

JEL Classification

  • D78
  • D81
  • G22
  • Q54