Averting and Insurance Decisions in the Wildland-Urban Interface: Implications of Survey and Experimental Data for Wildfire Risk Reduction Policy

Authors: Talberth, John; Berrens, Robert P.; McKee, Michael; Jones, Michael

Source: Contemporary Economic Policy, Volume 24, Number 2, April 2006 , pp. 203-223(21)

Publisher: Oxford University Press

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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)

Document Type: Research article

DOI: 10.1093/cep/byj021

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