The influence of risk attitudes on suppression spending and on wildland fire program budgeting

David Rossi and Olli-Pekka Kuusela

Forest Policy and Economics, 2020, vol. 113, issue C

Abstract: Research has suggested that excessive risk aversion is a key driver of rising federal suppression costs. To formally understand how alternative risk attitudes of contracted incident managers can affect a public fire management organization's demand for fire management effort, a two-stage sequential game with complete information is presented. Qualitative expressions of the relevant comparative statics are derived and Monte Carlo simulations are constructed from the parameterized game to quantify these relationships. The simulation exercise reveals that risk aversion and a low tolerance for downside risk can have the similar effect of increasing the relative share of agency expenditures devoted to wildfire suppression. This theoretical analysis exposes the potential for multiple types of risk attitudes to influence an incident commander's demand for suppression effort. Consequently, these determinants of suppression demand also influence the organization's overall allocation of fire management budgets, suppression's expenditure share, and the overall agency exposure to downside risk.

Keywords: Fire management; Suppression; Risk aversion; Downside risk; Cost plus net value change; Budgetary institutions (search for similar items in EconPapers)
JEL-codes: D73 D81 Q23 Q54 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:forpol:v:113:y:2020:i:c:s1389934119302606

DOI: 10.1016/j.forpol.2019.102087

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