Why Don’t Local Governments Buy Catastrophe Insurance? Biased Decision-Makers

• Authors: Magdalena Swacha-Lech , Mateusz Gawin

Abstracts

EN

Theoretical background: Incorporating behavioral analysis into finance allows for finding responses to many questions that researchers have not been able to answer by relying on assumptions characteristic of the traditional, normative approach. One of the areas where recently the achievements of behavioral finance have been used to analyze selected problems is public finance. In this article, we use the achievements of psychology, incorporating them into public finance, which allows us to shed new light on decisions made by public managers in Poland. Purpose of the article: The aim of this paper is to present the reasons why local governments do not buy insurance that would protect them against potential losses resulting from the occurrence of a catastrophic event. In this paper, we rely on responses from 303 municipalities, following the premise that an obvious way to learn about motives, constraints, and the decision-making process is to ask decision-makers. Research methods: This paper examines the influence of behavioral determinants and the level of tax revenue per capita on the decisions made by public managers. The CART method was used for this purpose. The necessary empirical data were obtained through a CAWI survey conducted in 2020 between August 1 and September 21 by a consortium of two research agencies: Biostat Research & Development Sp. z o.o. and Biostat Sp. z o.o. Main findings: The analysis conducted in this paper demonstrates that behavioral factors significantly impact public managers' decisions not to purchase catastrophe insurance. Our results confirm the significant role of a decision maker's traits, judgments, views, feelings, and experiences in the decision-making process.

Keywords

EN

catastrophe insurance; low-probability and high-consequence risk; human biases and heuristics

• Publisher: Wydawnictwo Uniwersytetu Marii Curie-Skłodowskiej
• Journal: Annales Universitatis Mariae Curie-Skłodowska, sectio H – Oeconomia
• Year: 2022
• Volume: 56
• Issue: 3
• Pages: 149-169

Dates

published

2022

Contributors

author

Magdalena Swacha-Lech

• Wrocław University of Economics and Business

• https://orcid.org/0000000301292968

author

Mateusz Gawin

• https://orcid.org/0000000286805437

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Identifiers

DOI

10.17951/h.2022.56.3.149-168

Biblioteka Nauki

2166144