Working Paper: NBER ID: w26550
Authors: Patrick Baylis; Judson Boomhower
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.
Keywords: wildfires; economic incidence; moral hazard; public expenditures; natural disasters
JEL Codes: H22; H23; Q54; Q58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Presence of homes (R21) | Firefighting costs (H56) |
| Home density (R21) | Marginal cost of protecting homes (H84) |
| Firefighting costs (H56) | Homeowners' transaction value (R21) |
| Federal fire protection spending (H56) | Homeowners (R21) |