Perpustakaan Digital ITB

This paper presents a lab-in-the-field experiment with 2111 Dutch homeowners in flood- plain areas to examine the impacts of financial incentives and behavioral motivations for self-insurance under different flood insurance schemes. We experimentally varied the in- surance type (mandatory public versus voluntary private) and the availability of a premium discount incentive for investing in flood damage mitigation measures. This set-up allowed us to examine the existence of moral hazard, advantageous selection and the behavioral motivations of individual agents who face these different insurance types, without the se- lection bias that makes a causal inference from survey studies problematic. The main re- sults show that a premium discount can increase investments in self-insurance under both private and public insurance. Moreover, we find no support for moral hazard in our natu- ral disaster insurance market, but we do find a substantial share of cautious people who invest both in private insurance as well as in self-insurance, indicating advantageous se- lection. The results have implications for the design of insurance schemes to cope with increasing natural disaster risks.