Why Don’t Local Governments Buy Catastrophe Insurance? Biased Decision-Makers

Abstract

Theoretical background: Incorporating behavioral analysis into finance allows for finding responses to many questions that researchers have not been able to answer by relying on assumptions characteristic of the traditional, normative approach. One of the areas where recently the achievements of behavioral finance have been used to analyze selected problems is public finance. In this article, we use the achievements of psychology, incorporating them into public finance, which allows us to shed new light on decisions made by public managers in Poland. Purpose of the article:The aim of this paper is to present the reasons why local governments do not buy insurance that would protect them against potential losses resulting from the occurrence of a catastrophic event. In this paper, we rely on responses from 303 municipalities, following the premise that an obvious way to learn about motives, constraints, and the decision-making process is to ask decision-makers.