UC Berkeley

How do households form expectations about the risk of future natural disasters, and how do these expectations translate into household adaptation choices? A stylized model of natural disasters yields predictions that higher perceived risk should increase precautionary savings, protective investments, insurance take-up, and out-migration. Using survey data from Puerto Rico collected after Hurricane Maria, I find that households are quite pessimistic about future hurricane risk. However, adaptation responses are muted, and the relationship between disaster expectations and adaptation decisions is limited. These patterns raise important puzzles about household responses to natural disaster risk.