Riders on the Storm: Hurricane Risk and Coastal Insurance and Mitigation Decisions

46 Pages Posted: 24 Apr 2017

See all articles by Harrison Laird

Harrison Laird

University of Georgia

Craig E. Landry

UGA Ag & Applied Economics

J. Scott Shonkwiler

University of Nevada, Reno

Daniel R. Petrolia

Mississippi State University - Department of Agricultural Economics

Date Written: April 23, 2017

Abstract

This paper utilizes cross-sectional, household-level, survey data combined with data on subjective risk perceptions and experimentally derived risk preferences to analyze the decision to insure against hurricane losses. Our sample encompasses 670 individuals in five states of the United States Gulf Coast Region (Texas, Louisiana, Mississippi, Alabama, and Florida). This study represents one of the few papers to examine wind insurance empirically and the only study to examine flood insurance, wind insurance, and mitigation behavior contemporaneously. Because these decisions are closely related, we employ a mixed-process regression, which allows for correlated error terms across a random-effects bivariate probit model (flood/wind insurance) and a Poisson Log-Normal count model (mitigation). Results indicate positive and statistically significant correlations between the error terms of the insurance and mitigation models but no significant correlation between the error terms of the two insurance models, conditioned on the covariates. We find evidence that risk perceptions and other household factors have some influence on storm risk management, but the strongest effects tend to be related to mandatory insurance requirements associated with location in high-hazard areas.

Keywords: Hurricane, Insurance, Mitigation, Choice, Uncertainty

JEL Classification: C31, D80, Q54

Suggested Citation

Laird, Harrison and Landry, Craig and Shonkwiler, J. Scott and Petrolia, Daniel R., Riders on the Storm: Hurricane Risk and Coastal Insurance and Mitigation Decisions (April 23, 2017). Available at SSRN: https://ssrn.com/abstract=2957192 or http://dx.doi.org/10.2139/ssrn.2957192

Harrison Laird

University of Georgia ( email )

Athens, GA 30602-6254
United States

Craig Landry (Contact Author)

UGA Ag & Applied Economics ( email )

Athens, GA 30602-7509
United States

J. Scott Shonkwiler

University of Nevada, Reno ( email )

Applied Economics and Statistics
Reno, NV 89557
United States
775-784-1341 (Phone)

Daniel R. Petrolia

Mississippi State University - Department of Agricultural Economics ( email )

Box 5187
Mississippi State, MS 39762
United States

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