The decision to insure against forest fire risk: an econometric analysis combining hypothetical real data
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The decision to insure against forest fire risk: an econometric analysis combining hypothetical real data M. Brunette1 · S. Couture2 · J. Foncel3 · S. Garcia4 Received: 7 January 2019 / Accepted: 8 August 2019 © The Geneva Association 2019
Abstract Storm and fire are the two main natural hazards in Europe. They result in high costs for forest owners. However, behaviour in terms of forest insurance demand is heterogenous across Europe. In this paper we focus on private forest owners’ decisions to insure against fire. We collected data on: i) willingness-to-pay (WTP) for insurance based on hypothetical scenarios incorporating ambiguous risks; ii) real data on insurance decisions and the individual characteristics. We simultaneously estimated real insurance and WTP using a selection equation for zero WTP that we explain by protest responses against insurance under expected utility. We found that real insurance provision is relevant to explaining positive WTP and that unobservable determinants of insurance may explain protest responses. These results confirm the interest in including observed decisions to analyse preferences towards insurance. One additional result is that facing ambiguous risk increases the WTP for insurance. Keywords Insurance decision · Willingness-to-pay · Ambiguity · Protest response · Corner solution · Forest fire
* M. Brunette [email protected] S. Couture [email protected] J. Foncel jerome.foncel@univ‑lille.fr S. Garcia [email protected] 1
University of Lorraine, University of Strasbourg, AgroParisTech CNRS, INRA, BETA, 54000 Nancy, France
2
INRA, UR 875 Applied Mathematics and Computer Science, 31326 Castanet‑Tolosan, France
3
University of Lille, LEM-CNRS, Lille, France
4
University of Lorraine, University of Strasbourg, AgroParisTech, CNRS, INRA, BETA, 54000 Nancy, France
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M. Brunette et al.
Introduction Natural hazards such as fire and storm regularly destroy forests worldwide. In European countries, storm and fire are responsible for 70% of total forestry damage caused by natural hazards, making them the two most important natural risks in the European forest sector (Schelhaas et al. 2003). In August 2003, wildfires destroyed 10% of Portuguese forests, and more than 70,000 hectares burned in France, while in summer 2007 in Greece 250,000 hectares of forest burned. According to SanMiguel-Ayanz et al. (2017), the average economic damage from fires in the European Union (EU) from 1991 to 2016 was EUR 1.8 million. In 2007, Windstorm Kyrill generated more than 54 million cubic meters of timber damage in Europe, and in 2009, Windstorm Klaus damaged 42 million cubic metres in southwestern France. Climate change will exacerbate the intensity and occurrence of these natural events in the future, increasing the risk associated with forest management (Spittlehouse and Stewart 2003; van Aalst 2006). Moreover, the effect of climate change on the characteristics of these natural events is largely uncertain, in particular in terms of their frequency.
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