The decision to insure against forest fire risk: an econometric analysis combining hypothetical real data
Storm and fire are the two main natural hazards in Europe. They result in high costs for forest owners. However, behaviour in terms of forest insurance demand is heterogenous across Europe. In this paper we focus on private forest owners’ decisions to insure against fire. We collected data on: i) willingness-to-pay (WTP) for insurance based on hypothetical scenarios incorporating ambiguous risks; ii) real data on 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 explaining positive WTP and that unobservable determinants of insurance may explain protest responses. These results confirm the interest in including observed decisions to analyse preferences towards insurance. One additional result is that facing ambiguous risk increases the WTP for insurance.
KeywordsInsurance decision Willingness-to-pay Ambiguity Protest response Corner solution Forest fire
The UMR BETA is supported by a grant overseen by the French National Research Agency (ANR) as part of the “Investissements d’Avenir” programme (ANR-11-LABX-0002-01, Lab of Excellence ARBRE).
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