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How the Change of Risk Announcement on Catastrophic Disaster Affects Property Prices?

In: The Economics of the Global Environment

Author

Listed:
  • Hayato Nakanishi

    (Kyoto University)

Abstract

In this article, we present evidence of the benefits of expected utility that is sensitive to rare events. Specifically, we estimate the treatment effect of reports on rare catastrophic tsunamis by using a land price hedonic approach. To identify this effect, we employed a difference in differences (DD) design. Ordinal expected utility predicts no effect since the probability of catastrophic events is sufficiently small to be ignored. However, the estimation result reveals a significant effect. This implies that ordinal expected utility derived from objective risk distribution may be inappropriate for the economic prediction of rare catastrophic events.

Suggested Citation

  • Hayato Nakanishi, 2016. "How the Change of Risk Announcement on Catastrophic Disaster Affects Property Prices?," Studies in Economic Theory, in: Graciela Chichilnisky & Armon Rezai (ed.), The Economics of the Global Environment, pages 577-595, Springer.
    • Handle: RePEc:spr:steccp:978-3-319-31943-8_25
    DOI: 10.1007/978-3-319-31943-8_25
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