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Earthquake risk and housing prices in Japan: Evidence before and after massive earthquakes

  • Naoi, Michio
  • Seko, Miki
  • Sumita, Kazuto

The hedonic pricing approach is used to examine whether homeowners and/or renters alter their subjective assessments of earthquake risks after massive earthquakes. Using nation-wide household panel data coupled with earthquake hazard information and records of observed earthquakes, we find that there are some modifications of individuals' assessments of earthquake risk in both cases. We have carefully taken into consideration the bias stemming from the use of objective risk variables as a proxy for individual risk assessments. Our results suggest that the price discount from locating within a quake-prone area is significantly larger soon after earthquake events than beforehand. We argue that the most likely interpretation for this result is that households tend to underestimate earthquake risk if there has not been a recent occurrence.

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Article provided by Elsevier in its journal Regional Science and Urban Economics.

Volume (Year): 39 (2009)
Issue (Month): 6 (November)
Pages: 658-669

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Handle: RePEc:eee:regeco:v:39:y:2009:i:6:p:658-669
Contact details of provider: Web page: http://www.elsevier.com/locate/regec

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  1. Thomas J. Kniesner & W. Kip Viscusi & Christopher Woock & James P. Ziliak, 2006. "Pinning Down the Value of Statistical Life," Center for Policy Research Working Papers 85, Center for Policy Research, Maxwell School, Syracuse University.
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  8. Brookshire, David S, et al, 1985. "A Test of the Expected Utility Model: Evidence from Earthquake Risks," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 369-89, April.
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  10. Maani, S A & Kask, S B, 1991. "Risk and Information: A Hedonic Price Study in the New Zealand Housing Market," The Economic Record, The Economic Society of Australia, vol. 67(198), pages 227-36, September.
  11. Michio Naoi & Kazuto Sumita & Miki Seko, 2007. "Earthquakes and the Quality of Life in Japan," Journal of Property Research, Taylor & Francis Journals, vol. 24(4), pages 313-334, December.
  12. Kurt J. Beron & James C. Murdoch & Mark A. Thayer & Wim P. M. Vijverberg, 1997. "An Analysis of the Housing Market before and after the 1989 Loma Prieta Earthquake," Land Economics, University of Wisconsin Press, vol. 73(1), pages 101-113.
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  14. Masayuki Nakagawa & Makoto Saito & Hisaki Yamaga, 2009. "Earthquake Risks And Land Prices: Evidence From The Tokyo Metropolitan Area," The Japanese Economic Review, Japanese Economic Association, vol. 60(2), pages 208-222.
  15. Hallstrom, Daniel G. & Smith, V. Kerry, 2005. "Market responses to hurricanes," Journal of Environmental Economics and Management, Elsevier, vol. 50(3), pages 541-561, November.
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