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Natural disasters and risk aversion

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  • Bourdeau-Brien, Michael
  • Kryzanowski, Lawrence

Abstract

The havoc brought by extreme weather events triggers well-documented adverse effects on human health, communities’ resources and economic development. In this paper, we focus on the consequences of disasters on financial markets and infer the impact of major catastrophes on the risk-taking behavior of investors from U.S. municipal bond transactions. The findings strongly support the conjecture that natural disasters cause a statistically and economically significant increase in risk aversion at the local level. Although the change in investors’ behavior appears to be temporary, this increase in risk aversion may dampen the stimulus effect of disaster financial assistance programs, slow the recovery phase and augment the perceived value of risk management programs and infrastructures.

Suggested Citation

  • Bourdeau-Brien, Michael & Kryzanowski, Lawrence, 2020. "Natural disasters and risk aversion," Journal of Economic Behavior & Organization, Elsevier, vol. 177(C), pages 818-835.
    • Handle: RePEc:eee:jeborg:v:177:y:2020:i:c:p:818-835
    DOI: 10.1016/j.jebo.2020.07.007
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    More about this item

    Keywords

    Risk aversion; Natural disaster; Municipal bond; Heterogeneous investor behavior; Spatial investment; Time-varying risk-taking behavior;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G1 - Financial Economics - - General Financial Markets
    • G4 - Financial Economics - - Behavioral Finance
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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