Climate Change Catastrophes and Insuring Decisions: A Study in the Presence of Ambiguity
36 Pages Posted: 6 Mar 2017 Last revised: 5 Jun 2017
Date Written: June 3, 2017
There has been very little research to test whether ambiguity affects individuals' decisions to insure themselves against the catastrophic effects of climate change. This paper attempts to study how individuals respond to the availability of an insurance that would safeguard their interests if a climate change catastrophe occurred. Moreover, if such an insurance is available to them, do they insure themselves sufficiently? Further, the study investigates if increased information regarding the probability of the catastrophic event, leads to an increase in insurance subscriptions. Finally, policy implications for the State are investigated - Can State intervention in the form of a "nudge" ensure a better outcome?
Keywords: Climate change catastrophes; insurance; ambiguity; Choquet expected utility; strategic substitutes; lemons market; nudge.
JEL Classification: C71, C91, D03, D81, Q54
Suggested Citation: Suggested Citation