Moral Hazard, Wildfires, and the Economic Incidence of Natural Disasters

Patrick Baylis and Judson Boomhower

No 26550, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This study measures the degree to which large public expenditures on wildfire protection subsidize development in harm's way. Using administrative firefighting data, we calculate geographically-differentiated implicit subsidies to homeowners throughout the western USA. We first examine how the presence of homes affects firefighting expenditures. These results are used to reconstruct the implied historical cost of protecting each home and to perform an actuarial calculation of expected future protection cost. The expected net present value of this subsidy can exceed 20% of a home's value. It increases with fire risk and decreases surprisingly steeply with development density. A simple model is used to explore effects on expansion of developed areas, density, and private risk-reducing investments. These results demonstrate how policy and institutions influence the costs imposed by a changing climate.

JEL-codes: H22 H23 Q54 Q58 (search for similar items in EconPapers)
Date: 2019-12
New Economics Papers: this item is included in nep-env and nep-ure
Note: EEE
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Citations: View citations in EconPapers (6)

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