The Department of Business and Management Science invites you to a faculty seminar with Emilia Garcia-Appendini, University of St Gallen.
We study the indirect economic consequences of natural disasters for households using administrative data from Norway. A unique feature of this setting is universal natural disaster insurance, which fully compensates direct damages and allows us to isolate indirect effects. Linking a municipality-level measure of disaster severity to population-wide consumption data and administrative records on income, wealth and housing transactions, we estimate household responses using a matched difference-in-differences design.
We find that disasters cause persistent and substantial declines in household consumption: four years after an event, the cumulative drop in spending amounts to as much as 40% of the average direct damages. Standard estimates of marginal propensities to consume imply that only a small portion of this contraction can be attributed to lower income, while the bulk is explained by a steep and persistent decline in housing wealth. These results suggest significant and long-lasting welfare costs of natural disasters on affected households, even when direct physical damages are completely insured.