Natural Disasters, Land Use, and Insurance

27 Pages Posted: 8 May 2015 Last revised: 22 Feb 2017

Céline Grislain-Letrémy

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST); Université Paris Dauphine; Ministry of Health

Bertrand Villeneuve

Université Paris Dauphine

Date Written: August 31, 2016

Abstract

This paper addresses the urbanization of areas exposed to natural disasters and studies its dependency on land-use and insurance policies. The risk-map paradox that we describe explains why an insurance system with simplistic maps and tariffs is the rule. Indeed, in practice we observe simple policies, consisting of a prohibited red zone and a zone without insurance tariff differentiation. We show that they implement the optimal land-use in specific cases. Even if there are fixed damages per dwelling, the red-zone policy is relatively efficient. In a central proposition, we detail the effects redefining the optimal red zone as the climate or the population changes. We use this analysis to expose and comment plausible cases in which, as the population grows, the red zone shrinks, the red zone grows, and the red zone shrinks and then grows.

Keywords: natural disasters, insurance, land-use regulation, climate change

JEL Classification: G22, R52, Q54

Suggested Citation

Grislain-Letrémy, Céline and Villeneuve, Bertrand, Natural Disasters, Land Use, and Insurance (August 31, 2016). Available at SSRN: https://ssrn.com/abstract=2603700 or http://dx.doi.org/10.2139/ssrn.2603700

Céline Grislain-Letrémy

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST) ( email )

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France

Université Paris Dauphine ( email )

Place du Maréchal de Lattre de Tassigny
Paris, Cedex 16, 75775
France

Ministry of Health ( email )

Ouagadougou
Burkina Faso

Bertrand Villeneuve (Contact Author)

Université Paris Dauphine ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775
France

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