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Abstract

This paper presents one of very few analyses of the decision to undertake wind mitigation measures, and the only study to analyze the decision to purchase wind coverage for individuals whose standard homeowner’s policy excludes wind. A simultaneous mixed-process approach is used that allows for correlated disturbances across probit (insurance) and tobit (mitigation) equations. Results indicate a positive correlation between the errors of the insurance and mitigation models; conditioning on covariates, households that hold wind insurance tend to engage in greater levels of wind mitigation. Thus, the data imply two types – households that purchase insurance and mitigate and others that do neither.

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