Extreme Weather Events: State Aid or Private Provision – Who Bears the Costs?

The floods in Germany in the summer of 2021 robbed many of those affected of their homes and caused billions in economic damage. It is foreseeable that such flood disasters will occur even more frequently in the future as a result of extreme weather events due to climate change. Who should take precautions against natural hazards? Although state aid payments help to cushion the immediate economic consequences of extreme weather events, they can at the same time undermine the incentives for private provision. How could compulsory insurance be designed in an economically sensible way without generating moral hazard behavior? To what extent should the state intervene in the insurance market?