Abstract
This chapter examines how objective disaster risk perception , which is based on disaster prevention information such as hazard maps , has affected household disaster prevention and mitigation activities in the aftermath of the Great East Japan Earthquake. The results of an analysis focusing on the purchase of earthquake insurance and implementation of household seismic retrofitting show that accessing disaster prevention materials does, on average, encourage household disaster prevention and mitigation activities. Furthermore, an examination of its relationship with objective earthquake occurrence risk—Japan Meteorological Agency (JMA) 6− or higher earthquake occurrence probability—revealed that accessing disaster prevention information had a significant effect on households in both relatively low- and high-risk regions. This result is consistent with the hypothesis that consumer perception bias for earthquake risk is reduced by the dissemination of objective risk indicators based on disaster prevention information. As a result, the rise in the number of households who have accessed disaster prevention information since the earthquake could be linked to disaster prevention and mitigation activities by households, particularly in regions with low and high probability of earthquake occurrence.
This chapter is adapted from Ishino et al. (2012) presented at the Japanese Economic Association Annual Fall Meeting.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
An example of this debate is the issue of cross-subsidization in the earthquake insurance market (Naoi et al. 2010; Saito and Ko 2011). For example, when regions facing different risks have the same insurance premium rate, this leads to an effective income transfer through the earthquake insurance market from a region with low risk to a region with high risk. This kind of (tacit) income transfer is known as cross-subsidization. Because it reduces the incentive for relatively low-risk households to purchase insurance, policyholders will tend to be residents of relatively high-risk regions. As a result, payments of anticipated insurance premiums rise, and incentives for consumer purchase grow even lower as rates shoot up.
- 2.
For similar behavioral economics explanations, see studies looking at the existence of framing effects. For example, Johnson et al. (1993) confirm that the probability of an event occurring and insurance premium assessments differ depending on how they are expressed.
- 3.
For example, in an experiment where it was proposed to one group the probability of a typical driver having a fatal accident in their lifetime (approximately 0.01) and to another group the probability of being part of a fatal accident on a single trip (approximately 2.5 × 10−7), 39% of the former group said they wore their seatbelt, while only 10% did so in the latter.
- 4.
There are several competing hypotheses over perception bias in rare events where the probability of the event occurring is extremely low. For example, Kahneman and Tversky (1979) suggest that people are able to both underestimate and overestimate the probability of an event occurring when it is a rare event where it is difficult to learn from experience or make an assessment. For other related research, see for example, Erev et al. (2008).
- 5.
See for example Brookshire et al. (1985) for an analysis of the impact of providing risk information in relation to real estate prices. Moreover, consumer risk perception can also be affected by past experience of disasters. See for example Kask and Maani (1992) and Naoi et al. (2009) for analyses examining this point.
- 6.
Pre-earthquake purchase rates are high compared with official earthquake insurance household purchase rates; this is due to the sample being limited to owner-occupied households. In fact, in the full sample, which included rental houses, the proportion of households who had purchased earthquake insurance (household goods and housing) pre-earthquake was 27.1%.
- 7.
While a similar analysis would be possible for earthquake insurance for household goods, when limited to households who had formerly purchased insurance, it was found that the intention to purchase earthquake insurance (housing) and earthquake insurance (household goods) was about the same, so the analysis has been restricted to housing only.
- 8.
Of the households who had not accessed resources on disaster prevention measures at the time of the survey (approximately 42%), 12% responded that they “would like to check, but there are no such resources,” while 30% responded that they “had not accessed.”
- 9.
Before September 2007, insurance premiums were also set through categorization into Zones 1–4 by prefecture, but revisions were made to which prefectures fell into which zone in September 2007. See Appendix 1: Table 13.6 for details about “Old and New Risk Rating Zones of Earthquake Insurance.”
- 10.
In the survey, the question asked to participants was “When you normally go out, how high does the chance of rainfall need to be for you to take an umbrella with you?”
- 11.
The estimated results for prior purchase of earthquake insurance (the estimated results in the first stage of sample selection) are shown in the first column of Appendix 2: Table 13.7. An omitted variable applicable to the estimates employs the old risk rating zones for earthquake insurance premium rates. While variables relating to these old risk rating zones are currently considered independent from the intention to purchase, they are predicted to be correlated with the previous purchase state.
- 12.
However, one caveat must be made concerning this interpretation. If the insurance market is taken to be competitive, then “actuarially fair” rate settings will be in place, and objective earthquake occurrence risk will be reflected in those rates. If, at this point, it is taken that there is no bias in the consumer’s risk perception, then risk-averse consumers will choose to purchase earthquake insurance (regardless of the level of objective risk), and given the rates, insurance purchasing activities will be decided independently of objective risk levels. Consequently, if a competitive insurance market is taken as a prerequisite, the connection between objective risk levels and insurance purchasing activities would suggest the existence of a risk perception bias, as noted in this study. However, it cannot be said that the current earthquake insurance market is competitive, and, as such, the relationship between objective risk levels and insurance purchasing behavior estimated here may at the very least be partially reflective of “distortions” in rate settings.
- 13.
A model needs to be created for consumer decision making over information access to precisely estimate the treatment effect of the access to disaster hazard information dummy. Provisionally, if consumers’ (unobservable) disaster awareness is taken to affect both insurance purchasing activities and access to disaster hazard information, then the estimated value of the coefficient for the access to disaster hazard information dummy (based on a straightforward probit model) will contain bias. An empirical model that has accounted for this possibility could take the form of a matching method or estimation method using instrumental variables, and this should be considered in the future.
- 14.
Estimated results for whether seismic retrofitting had previously been implemented are represented in the second column of Appendix 2: Table 13.7. The estimates are made using the same model as estimates for previous earthquake insurance purchasing activities.
References
Brookshire, D. S., Thayer, M. A., Tschirhart, J., & Schulze, W. D. (1985). A test of expected utility model: Evidence from earthquake risks. Journal of Political Economy,93(2), 369–389.
Camerer, C., & Kunreuther, H. (1989). Decision processes for low probability events: Policy implications. Journal of Policy Analysis and Management,8(4), 565–592.
Erev, I., Glozman, I., & Hertwig, R. (2008). What impacts the impact of rare events. Journal of Risk and Uncertainty,36(2), 153–177.
Ishino, T., Naoi, M., & Seko, M. (2012). The Great East Japan Earthquake and households’ risk mitigation activities—Earthquake insurance purchase and seismic retrofitting (Higashi Nihon Daishinsai to Kakei no Bosai Gensai Kodo -Jishin Hoken to Jutaku Taishin Kaisyu-). Paper presented at the Japanese Economic Association Annual Fall Meeting.
Johnson, E. J., Hershey, J., Meszaros, J., & Kunreuther, H. (1993). Framing, probability distortions, and insurance decisions. Journal of Risk and Uncertainty,7(1), 35–51.
Kahneman, D., & Tversky, A. (1979). Prospect theory: An Analysis of decision under risk. Econometrica,47(2), 263–292.
Kask, S. B., & Maani, S. A. (1992). Uncertainty, information, and hedonic pricing. Land Economics,68(2), 170–184.
Kunreuther, H. (1984). Causes of underinsurance against natural disasters. Geneva Papers on Risk and Insurance,9(31), 206–220.
Kunreuther, H., & Pauly, M. (2005). In W. K. Viscusi (Ed.), Foundations and trends in microeconomics (pp. 63–127).
Naoi, M. (2011). Shizen Saigai Risuku no Keizai Bunseki [An Economic Analysis of Natural Hazard Risk]. The Mitsubishi Economic Research Institute.
Naoi, M., Seko, M., & Sumita, K. (2009). Earthquake risk and housing prices in Japan: Evidence before and after massive earthquakes. Regional Science and Urban Economics,39(6), 658–669.
Naoi, M., Seko, M., & Sumita, K. (2010). Community rating, cross subsidies and underinsurance: Why so many households in Japan do not purchase earthquake insurance. Journal of Real Estate Finance and Economics,40(4), 544–561.
Naoi, M., Seko, M., & Ishino, T. (2012). Earthquake risk in Japan: Consumers’ risk mitigation responses after the Great East Japan Earthquake. Journal of Economic Issues,46(2), 519–530.
Ohtake, F. (2004). Shitsugyo to Kofukudo (Unemployment and happiness). The Japanese Journal of Labour Studies,528, 59–68.
Saito, M., & Ko, T. (2011). Tokyotonai no Kakeimuke Jishin Hoken Kanyuritsu Futairitsu no Kettei Mekanizumu ni kansuru Noto (A note on the mechanism behind the earthquake insurance purchase decision by households in Tokyo). Hitotsubashi Economics,5(1), 75–82.
Sato, M., & Saito, M. (2012). Jishin Hoken Kanyu Kodo ni okeru Kontekusuto Koka [The context effect in the choice of earthquake insurance contracts in Japan]. In Saito & Nakagawa (Ed.), On earthquake risk management: A behavioral perspective (Chap. 5, 133–169). Keiso Shobo.
Van de Ven, W. P. M. M., & Van Praag, B. M. S. (1981). The demand for deductibles in private health insurance: A probit model with sample selection. Journal of Econometrics,17, 229–252.
Author information
Authors and Affiliations
Corresponding author
Appendices
Appendix 1: Old and New Risk Rating Zones of Earthquake Insurance Premiums
Appendix 2: Estimation Result of Risk Mitigation Activities Before March 11, 2011 (First Stage of Sample Selection Model)
Rights and permissions
Copyright information
© 2019 Springer Nature Singapore Pte Ltd.
About this chapter
Cite this chapter
Seko, M. (2019). Households’ Risk Mitigation Activities and Risk Perception Bias: Earthquake Insurance Purchase and Seismic Retrofitting. In: Housing Markets and Household Behavior in Japan. Advances in Japanese Business and Economics, vol 19. Springer, Singapore. https://doi.org/10.1007/978-981-13-3369-9_13
Download citation
DOI: https://doi.org/10.1007/978-981-13-3369-9_13
Published:
Publisher Name: Springer, Singapore
Print ISBN: 978-981-13-3368-2
Online ISBN: 978-981-13-3369-9
eBook Packages: Economics and FinanceEconomics and Finance (R0)