Social Interactions and Households' Flood Insurance Decisions

62 Pages Posted: 18 Feb 2021 Last revised: 16 Feb 2022

See all articles by Zhongchen Hu

Zhongchen Hu

Chinese University of Hong Kong (Shenzhen)

Date Written: January 15, 2022

Abstract

Flooding is the most costly natural disaster faced by US households, yet policymakers are puzzled by the low take-up rates for flood insurance. Leveraging novel transaction-level data, this paper studies the influence of social interactions on households' insurance decisions. I show that households increase flood insurance purchases by 1-5 percent when their geographically distant friends are exposed to flooding events or to campaigns for flood insurance. These exogenous shocks to far-away friends should not affect local households' own insurance decisions except through peer effects. I provide evidence suggesting that social interactions facilitate learning through information dissemination and attention triggering.

Keywords: Household Finance, Peer Effects, Social Interactions, Flood Insurance, Climate Risk

Suggested Citation

Hu, Zhongchen, Social Interactions and Households' Flood Insurance Decisions (January 15, 2022). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3759016 or http://dx.doi.org/10.2139/ssrn.3759016

Zhongchen Hu (Contact Author)

Chinese University of Hong Kong (Shenzhen) ( email )

2001 Longxiang Road, Longgang District
Shenzhen, 518172
China

HOME PAGE: http://sites.google.com/view/zhongchen-hu

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