Paul A. Raschky

Charity hazard : A real hazard to natural disaster insurance?

Abstract After the flooding in 2002 European governments provided billions of Euros of financial assistance to their citizens. Although there is no doubt that solidarity and some sort of assistance are reasonable, the question arises why these damages were not sufficiently insured. One explanation why individuals reject to obtain insurance cover against natural hazards is that they anticipate governmental and private aid. This problem became to be known as “charity hazard”. The present paper gives an economic analysis of the institutional arrangements on the market for natural disaster insurances focusing on imperfections caused by governmental financial relief. It provides a theoretical explanation why charity hazard is a problem on the market for natural disaster insurances, in the way that it acts as an obstacle for the proper diffusion and therefore the establishment of natural hazard insurances. This paper provides a review of the scientific discussion on charity hazard, provides a theoretical analysis and points out the existing empirical problems regarding this issue.

Aid, catastrophes and the Samaritan's Dilemma

This paper discusses the impact of foreign aid on the recipient country’s preparedness against natural disasters. The theoretical model shows that foreign aid can have two opposing eects on a country’s level of mitigating activities. In order to test the theoretical propositions we analyse the eect of foreign aid dependence on ex-ante riskmanagement activity proxied by the death toll from major storms, floods and earthquakes occurring worldwide between 1980 and 2002. We find evidence that the crowding-out eect of foreign aid outweighs the preventive eect in the case of storms, while there is mixed evidence in the case of floods and earthquakes.

Aid, natural disasters and the samaritan's dilemma

This paper discusses the impact of foreign aid on the recipient countrys preparedness against natural disasters. The theoretical model shows that foreign aid can have two opposing effects on a countrys level of mitigating activities. In order to test the theoretical propositions, the authors analyze the effect of foreign aid dependence on ex-ante risk-management activity proxied by the death toll from major storms, floods and earthquakes occurring worldwide between 1980 and 2002. They find evidence that the crowding-out effect of foreign aid outweighs the preventive effect in the case of storms, while there is mixed evidence in the case of floods and earthquakes.

The Hedonics of Hedonism – Estimating the Value of Risk-Taking Activities

This paper estimates the individual willingness to pay (WTP) for the option to exercise risk-taking. We use data of 69 Austrian Ski resorts and 3,637 reported ski accidents and apply the hedonic market method. Our results suggest that the individual WTP for a hypothetical increase in the possibility to undertake risk-taking activities lies between 11% and 25% of the price of a ski-lift-ticket. Monetized values help design pricing schemes that set incentives to reduce risk-taking behavior as well as to develop alternative instruments to reduce the adverse effects of risk-taking activities (e.g. accidents). Copyright 2009 Blackwell Publishing Ltd.

Reproductive Behaviour at the End of the World: The Effect of the Cuban Missile Crisis on U.S. Fertility

We exploit the timing of the Cuban Missile Crisis and the geographical variation in mortality risks individuals faced across states to analyze reproduction decisions. The results of a difference-in-differences approach show evidence that fertility increased in states that are geographically closer to Cuba and states with more military installations. The findings suggest that when facing high mortality risks, individuals might discount future at an extremely high rate and indulge in reproductive activities. [67 words]

Valuing environmental services provided by local stormwater management

Decentralized stormwater management systems deliver a number of environmental services that go beyond the reduction of flood risk, which has been the focus of con-ventional stormwater systems. Not all of these services may be equally valued by the public, however. This paper estimates households’ willingness to pay (WTP) for im-provements in water security, stream health, amenity values, as well as the reduction in flood risk and urban heat island effect. We use data from nearly 1,000 personal interviews with residential homeowners in Melbourne and Sydney, Australia. Our re-sults suggest that the WTP for the highest levels of all environmental services is A

Global supply chains and natural disasters: Implications for international trade

409 per household per year. WTP is mainly driven by the residents’ positive valuation for exemptions in water restrictions, improvements in local stream health, and decreased peak urban temperatures. We further conduct a benefit transfer analysis and find that the WTP is not significantly different between the study areas. Our findings provide additional support that decentralized stormwater management systems have large non-market benefits and that, under certain conditions, benefit values can be transferred to different locations.

Aid on Demand: African Leaders and the Geography of China's Foreign Assistance

This timely book deploys new tools and measures to understand how global production networks change the nature of global economic interdependence, and how that in turn changes our understanding of which policies are appropriate in this new environment. Bringing to bear an array of the latest methods and data to study global value chains, this unique book assesses the evolution of global value chains at the firm level, and how this affects competitiveness in Asia.

Intergovernmental Interaction in Compliance with an International Environmental Agreement

This article investigates whether China’s foreign aid is particularly prone to capture by political leaders of aid-receiving countries. We examine whether more Chinese aid is allocated to the birth regions of political leaders and regions populated by the ethnic groups to which leaders belong, controlling for indicators of need and various fixed effects. We have collected data on 117 African leaders’ birthplaces and ethnic groups and have geocoded 1,650 Chinese development finance projects across 3,097 physical locations that were committed to Africa over the 2000–2012 period. Our econometric results show that when leaders hold power their birth regions receive substantially more funding from China than other subnational regions. We also find — less robust — evidence that African leaders direct more Chinese aid to areas populated by individuals who share their ethnicity. However, when we replicate the analysis for the World Bank, our regressions show no evidence of favoritism. We also evaluate the impact of Chinese aid on regional development, exploiting time variation in the amount of Chinese aid that results from China’s production of steel and geographical variation in the probability that a subnational region will receive such aid. We find that Chinese aid improves local development outcomes, as measured by per-capita nighttime light emissions at the first and second subnational administrative level. We therefore conclude that China’s foreign aid program has both distributional and developmental consequences for Africa.

Analysing Decision Mechanisms for Natural Hazard Management

This paper provides an empirical analysis of the role of intergovernmental interaction in countries’ compliance with an international environmental agreement (IEA). We use two cross-sectional data sets that contain information on signatory countries’ compliance with an IEA on responsible fisheries. Our empirical strategy is based on estimating a spatial Durbin model using a maximum likelihood procedure. The results show that compliance effort by other participants has a systematic positive effect on a country’s own compliance. We argue that these findings provide empirical evidence that intergovernmental relations can improve the performance of voluntary IEAs where other formal sanction mechanisms are absent.