Does Federal Disaster Assistance Crowd Out Private Insurance?

Publication Type: 
Erwann O. Michel‐Kerjan
Carolyn Kousky
Paul A. Raschky
The number of U.S. Presidential disaster declarations has risen in recent years,   as has the proportion of disaster losses paid by taxpayers for large catastrophes.   Federal disaster relief potentially creates moral hazard: receiving or expecting   to receive money from the government after a disaster might reduce demand   for insurance, resulting in even greater need for government relief when another disaster hits. We study the effect of federal disaster aid   – both grants and loans – on insurance purchases.