IDEAS home Printed from https://ideas.repec.org/a/bpj/jbvela/v4y2009i2n8.html
   My bibliography  Save this article

Interest Rate Manipulation, Environmental Damage, and Loss Valuation

Author

Listed:
  • Yanochik Mark A.

    (Georgia Southern University)

  • Kumazawa Risa

    (Georgia Southern University)

Abstract

The damage generated by Hurricane Katrina caused significant private as well as social costs. The water and force from the hurricane and subsequent flooding caused immediate property damage, but also potential environmental contamination over time. The decision on the part of property owners affected by Katrina to deal with damaged property must take into account both the private and social costs. This paper explores this decision making process using a real-options model. In particular, we focus on the element of time preference in this decision. We analyze the impact that changes in monetary policy, and ultimately the discount rate, have on the decision to repair or rebuild a property damaged by flooding. According to the theory, rising interest rates would suggest a greater propensity to defer the option to rebuild damaged properties, whereas falling interest rates cause property owners to reach the decision to rebuild properties relatively more quickly.

Suggested Citation

  • Yanochik Mark A. & Kumazawa Risa, 2009. "Interest Rate Manipulation, Environmental Damage, and Loss Valuation," Journal of Business Valuation and Economic Loss Analysis, De Gruyter, vol. 4(2), pages 1-14, April.
    • Handle: RePEc:bpj:jbvela:v:4:y:2009:i:2:n:8
    DOI: 10.2202/1932-9156.1044
    as

    Download full text from publisher

    File URL: https://doi.org/10.2202/1932-9156.1044
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.
    File URL: https://libkey.io/10.2202/1932-9156.1044?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    2. Carolyn Kousky & Erzo Luttmer & Richard Zeckhauser, 2006. "Private investment and government protection," Journal of Risk and Uncertainty, Springer, vol. 33(1), pages 73-100, September.
    3. W. Viscusi & Richard Zeckhauser, 2006. "National survey evidence on disasters and relief: Risk beliefs, self-interest, and compassion," Journal of Risk and Uncertainty, Springer, vol. 33(1), pages 13-36, September.
    4. William F. Chappell & Richard G. Forgette & David A. Swanson & Mark V. Van Boening, 2007. "Determinants of Government Aid to Katrina Survivors: Evidence from Survey Data," Southern Economic Journal, John Wiley & Sons, vol. 74(2), pages 344-362, October.
    5. V. Smith & Jared Carbone & Jaren Pope & Daniel Hallstrom & Michael Darden, 2006. "Adjusting to natural disasters," Journal of Risk and Uncertainty, Springer, vol. 33(1), pages 37-54, September.
    6. Lester Lave & Jay Apt, 2006. "Planning for natural disasters in a stochastic world," Journal of Risk and Uncertainty, Springer, vol. 33(1), pages 117-130, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kumazawa Risa & Query J. Tim & Yanochik Mark A., 2011. "A Real-Options Approach to Post-Hurricane Loss Valuation of Damage Property: Rebuild or Repair?," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 5(1), pages 1-14, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Qin Fan & Meri Davlasheridze, 2016. "Flood Risk, Flood Mitigation, and Location Choice: Evaluating the National Flood Insurance Program's Community Rating System," Risk Analysis, John Wiley & Sons, vol. 36(6), pages 1125-1147, June.
    2. Jacqueline Volkman-Wise, 2015. "Representativeness and managing catastrophe risk," Journal of Risk and Uncertainty, Springer, vol. 51(3), pages 267-290, December.
    3. Thomas Gries & Natasa Bilkic, 2014. "Investment under Threat of Disaster," Working Papers CIE 77, Paderborn University, CIE Center for International Economics.
    4. Kumazawa Risa & Query J. Tim & Yanochik Mark A., 2011. "A Real-Options Approach to Post-Hurricane Loss Valuation of Damage Property: Rebuild or Repair?," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 5(1), pages 1-14, March.
    5. Scott Farrow, 2015. "A comparison of key benefit estimation issues for natural hazards and terrorism: ex ante/ex post valuation and endogenous risk," Chapters, in: Carol Mansfield & V. K. Smith (ed.), Benefit–Cost Analyses for Security Policies, chapter 6, pages 140-154, Edward Elgar Publishing.
    6. Kahn, Matthew E., 2015. "Climate Change Adaptation: Lessons from Urban Economics," Strategic Behavior and the Environment, now publishers, vol. 5(1), pages 1-30, June.
    7. Meri Davlasheridze & Pinar C. Geylani, 2017. "Small Business vulnerability to floods and the effects of disaster loans," Small Business Economics, Springer, vol. 49(4), pages 865-888, December.
    8. Liu, Xian & Noonan, Douglas, 2022. "Building underwater: Effects of community-scale flood management on housing development," Journal of Housing Economics, Elsevier, vol. 57(C).
    9. Douglas S. Noonan & Xian Liu, 2019. "Heading for the Hills? Effects of Community Flood Management on Local Adaptation to Flood Risks," Southern Economic Journal, John Wiley & Sons, vol. 86(2), pages 800-822, October.
    10. Asadul Islam & C. Matthew Leister & Minhaj Mahmud & Paul A. Raschky, 2020. "Natural disaster and risk-sharing behavior: Evidence from rural Bangladesh," Journal of Risk and Uncertainty, Springer, vol. 61(1), pages 67-99, August.
    11. Daniel Sutter & Marc Poitras, 2010. "Do people respond to low probability risks? Evidence from tornado risk and manufactured homes," Journal of Risk and Uncertainty, Springer, vol. 40(2), pages 181-196, April.
    12. Meri Davlasheridze & Qin Fan, 2017. "Household Adjustments to Hurricane Katrina," The Review of Regional Studies, Southern Regional Science Association, vol. 47(1), pages 92-112, Winter.
    13. Bunten, Devin & Kahn, Matthew E., 2017. "Optimal real estate capital durability and localized climate change disaster risk," Journal of Housing Economics, Elsevier, vol. 36(C), pages 1-7.
    14. Raghav Gaiha1 & Kenneth Hill & Ganesh Thapa, 2012. "Have Natural Disasters Become Deadlier?," ASARC Working Papers 2012-03, The Australian National University, Australia South Asia Research Centre.
    15. Fan, Qin & Davlasheridze, Meri, 2014. "Evaluating the Effectiveness of Flood Mitigation Policies in the U.S," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 169399, Agricultural and Applied Economics Association.
    16. Raghav Gaiha & Kenneth Hill & Ganesh Thapa & Varsha S. Kulkarni, 2013. "Have natural disasters become deadlier?," Global Development Institute Working Paper Series 18113, GDI, The University of Manchester.
    17. Leah Platt Boustan & Matthew E. Kahn & Paul W. Rhode, 2012. "Moving to Higher Ground: Migration Response to Natural Disasters in the Early Twentieth Century," American Economic Review, American Economic Association, vol. 102(3), pages 238-244, May.
    18. Oscar Gutiérrez & Francisco Ruiz-Aliseda, 2011. "Real options with unknown-date events," Annals of Finance, Springer, vol. 7(2), pages 171-198, May.
    19. Arve, Malin & Zwart, Gijsbert, 2023. "Optimal procurement and investment in new technologies under uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 147(C).
    20. Marks, Phillipa & Marks, Brian, 2007. "Spectrum Allocation, Spectrum Commons and Public Goods: the Role of the Market," MPRA Paper 6785, University Library of Munich, Germany.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:jbvela:v:4:y:2009:i:2:n:8. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.degruyter.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.