AVERTING AND INSURANCE DECISIONS IN THE WILDLAND–URBAN INTERFACE: IMPLICATIONS OF SURVEY AND EXPERIMENTAL DATA FOR WILDFIRE RISK REDUCTION POLICY

John Talberth, Robert Berrens, Michael McKee and Michael Jones

Contemporary Economic Policy, 2006, vol. 24, issue 2, 203-223

Abstract: When confronted by catastrophic wildfire risk, homeowners simultaneously allocate resources between insurance and averting activities. Expected utility theory suggests that complete insurance coverage precludes investment in averting activities. However, when potential losses include a significant nonmarket component, optimal choice includes both. To investigate this issue, the authors analyze a unique combination of contingent valuation and experimental data. Both settings include a split‐sample treatment to test the influence of wildfire risk zone information. The authors find that amenity values, subjective risk, averting efficacy perception, and demographic factors influence both willingness to pay and averting share and that risk information has the predicted ordering effect. (JEL C9, Q51, Q54)

Date: 2006
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