Quasi-experimental evidence for the importance of accounting for fear when evaluating catastrophic events

Hayato Nakanishi ()
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Hayato Nakanishi: Kyoto University

Empirical Economics, 2017, vol. 52, issue 2, No 17, 869-894

Abstract: Abstract This study examines the importance of accounting for rare but catastrophic events even if the probability of occurrence is extremely low, which is often ignored when expected utility is considered. To provide empirical evidence for this, we present the land price change related to the Japanese government’s report on the damage of catastrophic earthquakes and tsunamis whose probability of occurrence is extremely low. While this relationship has been studied in previous research, there are some notable shortcomings. Firstly, the control of the attributes between the treatment group, namely the land in the area where information is updated, and the control group is insufficient. Secondly, the link between rational behavior and the estimation result is not established enough. This study addresses these two points and updates the findings in this regard. We find that the estimated results presented herein match those proposed by previous works, confirming that the established link between the data and rational behavior suggests the importance of accounting for such catastrophic events even if their probability of occurrence is extremely low.

Keywords: Catastrophic risk; Quasi-experiment; Difference-in-differences; Tsunami (search for similar items in EconPapers)
JEL-codes: Q54 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s00181-016-1084-6

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