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Risk externalities and the problem of wildfire risk

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  • Shafran, Aric P.
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    Abstract

    Homeowners living in the wildland-urban interface must decide whether or not to create a defensible space around their house in order to mitigate the risk of a wildfire destroying their home. Risk externalities complicate this decision; the risk that one homeowner faces depends on the risk mitigation decisions of neighboring homeowners. This paper models the problem as a game played between neighbors in a wildland-urban interface. The model explains why sub-optimal investment in defensible space is likely and provides insights into the likely effectiveness of programs designed to encourage households to increase their defensible space. Data from Boulder County, Colorado confirm that a household's defensible space decision depends on the defensible space outcomes at neighboring sites.

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    File URL: http://www.sciencedirect.com/science/article/B6WMG-4SFXK3V-1/2/3dc3944355d52f8a6ccacd031289fc0c
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Urban Economics.

    Volume (Year): 64 (2008)
    Issue (Month): 2 (September)
    Pages: 488-495

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    Handle: RePEc:eee:juecon:v:64:y:2008:i:2:p:488-495

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    Web page: http://www.elsevier.com/locate/inca/622905

    Related research

    Keywords: Wildland-urban interface Wildfire Externalities Risk mitigation Spatial interactions;

    References

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    1. John Talberth & Robert P. Berrens & Michael Mckee & Michael Jones, 2006. "Averting And Insurance Decisions In The Wildland-Urban Interface: Implications Of Survey And Experimental Data For Wildfire Risk Reduction Policy," Contemporary Economic Policy, Western Economic Association International, vol. 24(2), pages 203-223, 04.
    2. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384.
    3. John B Van Huyck & Raymond C Battalio & Richard O Beil, 1997. "Tacit coordination games, strategic uncertainty, and coordination failure," Levine's Working Paper Archive 1225, David K. Levine.
    4. Geoffrey Heal & Howard Kunreuther, 2004. "Interdependent Security: A General Model," NBER Working Papers 10706, National Bureau of Economic Research, Inc.
    5. Paul M. Jakus, 1994. "Averting Behavior in the Presence of Public Spillovers: Household Control of Nuisance Pests," Land Economics, University of Wisconsin Press, vol. 70(3), pages 273-285.
    6. Avinash Dixit, 2003. "Clubs with Entrapment," American Economic Review, American Economic Association, vol. 93(5), pages 1824-1829, December.
    7. Schmidt, David & Shupp, Robert & Walker, James M. & Ostrom, Elinor, 2003. "Playing safe in coordination games:: the roles of risk dominance, payoff dominance, and history of play," Games and Economic Behavior, Elsevier, vol. 42(2), pages 281-299, February.
    8. Van Huyck, John B. & Cook, Joseph P. & Battalio, Raymond C., 1997. "Adaptive behavior and coordination failure," Journal of Economic Behavior & Organization, Elsevier, vol. 32(4), pages 483-503, April.
    9. Vives, Xavier, 1990. "Nash equilibrium with strategic complementarities," Journal of Mathematical Economics, Elsevier, vol. 19(3), pages 305-321.
    10. Straub, Paul G., 1995. "Risk dominance and coordination failures in static games," The Quarterly Review of Economics and Finance, Elsevier, vol. 35(4), pages 339-363.
    11. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-77, November.
    12. Anselin, Luc & Bera, Anil K. & Florax, Raymond & Yoon, Mann J., 1996. "Simple diagnostic tests for spatial dependence," Regional Science and Urban Economics, Elsevier, vol. 26(1), pages 77-104, February.
    13. Case, Anne C. & Rosen, Harvey S. & Hines, James Jr., 1993. "Budget spillovers and fiscal policy interdependence : Evidence from the states," Journal of Public Economics, Elsevier, vol. 52(3), pages 285-307, October.
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    Cited by:
    1. Kousky, Carolyn, 2012. "Informing Climate Adaptation: A Review of the Economic Costs of Natural Disasters, Their Determinants, and Risk Reduction Options," Discussion Papers dp-12-28, Resources For the Future.
    2. Kimberly Rollins & Mimako Kobayashi, 2010. "Embedding a Field Experiment in Contingent Valuation to Measure Context-Dependent Risk Preferences: Does Prospect Theory Explain Individual Responses for Wildfire Risk?," Working Papers 10-003, University of Nevada, Reno, Department of Economics & University of Nevada, Reno , Department of Resource Economics.
    3. Thomas J. Cova & Philip E. Dennison & Frank A. Drews, 2011. "Modeling Evacuate versus Shelter-in-Place Decisions in Wildfires," Sustainability, MDPI, Open Access Journal, vol. 3(10), pages 1662-1687, September.
    4. Gregory DeCoster & William Strange, 2012. "Developers, Herding, and Overbuilding," The Journal of Real Estate Finance and Economics, Springer, vol. 44(1), pages 7-35, January.

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