We investigate whether people were insured against unexpected losses caused by the Great
Hanshin-Awaji (Kobe) earthquake in 1995. The unique household data employed led to several
empirical findings under a natural-experimental situation. The complete consumption
insurance hypothesis is rejected overwhelmingly, suggesting the ineffectiveness of the formal
and/or informal insurance mechanisms against the earthquake. We also investigate possible
factors that inhibit full risk-sharing. Transfers may be particularly ineffective as insurance
against losses for co-resident households. Households borrow extensively against housing
damages, whereas dissavings are utilized for smaller asset damages, implying a hierarchy of
risk-coping measures, from dissaving to borrowing.
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