Context Comes to Mind: Evidence and Implications for Protection against Catastrophes
60 Pages Posted: 29 Mar 2022 Last revised: 29 Apr 2022
Date Written: March 5, 2022
We study how the urban context of a disaster affects protection decisions against catastrophes using the 1995 Kobe earthquake, which is highly relevant to urban life but difficult to link with rural life. We use a Bayesian approach to identify regions with major cities where the sensitivities of earthquake insurance take-up determinants shifted after the earthquake. We found that relevance to the urban context creates significant heterogeneity in post-quake protection decisions. Furthermore, the post-quake substitution between earthquake insurance and life insurance suggests that information content strongly influences perceived risk and protection decisions.
Keywords: catastrophe, earthquake, context, heuristic, insurance
JEL Classification: D12, D81, D83, G2
Suggested Citation: Suggested Citation