Unintentional man‐made disasters, risk preferences, and insurance demand

Abstract

While unintentional man‐made disasters constitute the majority of man‐made catastrophes, empirical evidence on their economic consequences remains scarce. Utilizing a unique dataset on extremely severe accidents (ESAs) in China and a nationally representative longitudinal household survey, we find that unintentional man‐made disasters reduce individuals' willingness to take risks. Mechanism analysis further shows that such disasters erode political trust in local government officials without affecting social trust. Additionally, we find that ESAs reduce demand for high‐return‐oriented insurance products, though they do not diminish demand for protection‐oriented, non‐investment products like health insurance. Our study provides the first systematic evidence on the consequences of unintentional man‐made disasters, highlighting political trust as an important channel through which disaster shocks shape households' financial decisions.