Natural disasters, land-use, and insurance

Abstract

This paper addresses the urbanization of areas exposed to natural disasters and studies its dependency on land-use and insurance policies. In practice, we observe simple policies, consisting of a prohibited red zone and a zone without insurance tariff differentiation. Even if there are fixed damages per dwelling, the red-zone policy is relatively efficient; it implements the optimal land-use if the losses are proportional to the surface used. The main results are on the effects redefining the optimal red zone as the climate or the population changes. We expose plausible cases in which the red zone grows with a growing population.