Earthquake-risk salience and housing prices: Evidence from California

Amir Fekrazad

Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), 2019, vol. 78, issue C, 104-113

Abstract: I investigate the hypothesis that earthquake-risk salience increases in a housing market in response to the news of out-of-the-market earthquakes, which subsequently leads to an increase in price differential between low-risk and high-risk areas within the market. Using data on 20 years of worldwide earthquake occurrences and California housing prices, I find that both home value index and median listing price decrease by approximately 6% and 3% respectively in California zip codes with high seismic hazard (relative to those with low seismic hazard) after high-casualty earthquakes occur outside of California. Additionally, I show that (a) the higher an earthquake’s death toll, the larger the increase in the price differential; (b) an earthquake in Europe has a significantly larger impact on California’s price differential than a similarly deadly earthquake in another region; and (c) the effects are transient and dissipate one month after the earthquake occurs. The results are robust to various specifications and multiple robustness checks.

Keywords: Hedonic pricing; Natural disasters; Risk salience; Earthquakes; Housing market (search for similar items in EconPapers)
JEL-codes: Q54 R31 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:soceco:v:78:y:2019:i:c:p:104-113

DOI: 10.1016/j.socec.2019.01.001

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