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Information shock of disaster and hazard: Impact of Kaohsiung gas explosions and risk disclosure on the equalizing difference in the housing market

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  • Wen‐Chi Liao
  • Yilan Luo
  • Yajie Sun

Abstract

Disasters damaged economies and markets. Many studies inquired how calamities affected household risk perception and home value to understand the hazards’ influences on expected utility. A remaining challenge is identifying equalizing difference, a necessary spatial equilibrium condition, keeping households indifferent among properties with different disaster risks. We fill this gap, analyzing a quasi‐natural experiment with two events: the 2014 Kaohsiung Gas Explosions and subsequent disclosure of underground petrochemical pipelines. A spatial model with prospective reference theory predicts home‐value changes after each event for areas with different risks and distinguishes the equalizing difference from price changes induced by risk adjustments. Difference‐in‐differences (DD) analyses uncover an equalizing difference worth 2.6% home value compensating for households’ exposure to the petrochemical hazard, besides risk‐adjustment price changes concerned by existing DD studies. The equalizing difference shrank with distance to hazard and time. Also, the neighborhood struck by the disaster has regained energy, a finding with implications for urban resilience.

Suggested Citation

  • Wen‐Chi Liao & Yilan Luo & Yajie Sun, 2022. "Information shock of disaster and hazard: Impact of Kaohsiung gas explosions and risk disclosure on the equalizing difference in the housing market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 50(6), pages 1492-1531, November.
    • Handle: RePEc:bla:reesec:v:50:y:2022:i:6:p:1492-1531
    DOI: 10.1111/1540-6229.12382
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