Beliefs on climate change and insurance in Red and blue states
Are people’s financial decisions related to their belief in climate change? The authors of Do Households Respond to Climate Change? Evidence from the U.S. Homeowners Insurance Market says there’s a positive relationship between the perception of climate change risk and the amount of homeowners’ insurance coverage purchased. According to the authors, the association is concentrated in pro-Democratic states (“blue states”) and does not exist in states with a strong political orientation towards the Republican Party (“red states”). “The evidence is consistent with cheap talk by individuals in pro-Republican states when surveyed about climate change. The results are absent in a placebo test using renters’ insurance. They are robust to instrumental variable estimations using a state-level drought severity index as the instrument to account for potential endogeneity arising from unobserved factors. Our findings have important implications for how climate change affects U.S. households’ risk management decisions.” Authors: J. Tyler Leverty, University of Wisconsin, Madison; Tao Sun, Lingnan University, and Hong Zou, The University of Hong Kong Faculty of Business and Economics.
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