Citation

Kunreuther H, Demidov A, Pauly M, Turcic M, Wilson M. Risk Anal. 2023; ePub(ePub): ePub.

Copyright

(Copyright © 2023, Society for Risk Analysis, Publisher John Wiley and Sons)

DOI

10.1111/risa.14135

PMID

37045562

Abstract

Property damage from wildfires occurs from spread into built-up areas, the wildland-urban interface. Fire spread occurs as embers from one burning structure ignite neighboring ones-but mitigation reduces the chances that fire spreads. In this study, we use a simulation model with realistic parameters for a neighborhood in California to illustrate patterns of marginal benefit from mitigation. We extend existing models of fire spread in two novel ways. We show how to describe the no-regulation equilibrium and social optimal levels of mitigation by incorporating data on a key factor, the distribution of house values in the community. We incorporate insurance in the model and show that it improves homeowner decision-making and insurance premium regulation. The fire spread simulations show that under plausible parameter values, there is a pattern in which mitigation's marginal benefit is low at low levels of community mitigation, rises to a maximum, and then falls quickly to a low level. We argue that the maximum marginal benefit is a guide to achieving optimal mitigation in a community. Owner mitigation decisions will depend on the distribution of house values in the neighborhood and other factors. In an illustration, we use the distribution of house values in a California community to illustrate the mitigation owners will choose under independent (Nash) investment decisions, and the efficiency-improving actions involving regulations or insurance premium subsidies that can lead to the social optimum.

Language: en

Keywords

insurance; regulation; wildfires; fire spread