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The influence of risk attitudes on suppression spending and on wildland fire program budgeting

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  • Rossi, David
  • Kuusela, Olli-Pekka

Abstract

Research has suggested that excessive risk aversion is a key driver of rising federal suppression costs. To formally understand how alternative risk attitudes of contracted incident managers can affect a public fire management organization's demand for fire management effort, a two-stage sequential game with complete information is presented. Qualitative expressions of the relevant comparative statics are derived and Monte Carlo simulations are constructed from the parameterized game to quantify these relationships. The simulation exercise reveals that risk aversion and a low tolerance for downside risk can have the similar effect of increasing the relative share of agency expenditures devoted to wildfire suppression. This theoretical analysis exposes the potential for multiple types of risk attitudes to influence an incident commander's demand for suppression effort. Consequently, these determinants of suppression demand also influence the organization's overall allocation of fire management budgets, suppression's expenditure share, and the overall agency exposure to downside risk.

Suggested Citation

  • Rossi, David & Kuusela, Olli-Pekka, 2020. "The influence of risk attitudes on suppression spending and on wildland fire program budgeting," Forest Policy and Economics, Elsevier, vol. 113(C).
    • Handle: RePEc:eee:forpol:v:113:y:2020:i:c:s1389934119302606
    DOI: 10.1016/j.forpol.2019.102087
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    References listed on IDEAS

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    8. Matthew J. Wibbenmeyer & Michael S. Hand & David E. Calkin & Tyron J. Venn & Matthew P. Thompson, 2013. "Risk Preferences in Strategic Wildfire Decision Making: A Choice Experiment with U.S. Wildfire Managers," Risk Analysis, John Wiley & Sons, vol. 33(6), pages 1021-1037, June.
    9. Calkin, David C. & Finney, Mark A. & Ager, Alan A. & Thompson, Matthew P. & Gebert, Krista M., 2011. "Progress towards and barriers to implementation of a risk framework for US federal wildland fire policy and decision making," Forest Policy and Economics, Elsevier, vol. 13(5), pages 378-389, June.
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    Cited by:

    1. Rossi, David & Kuusela, Olli-Pekka & Dunn, Christopher, 2022. "A microeconometric analysis of wildfire suppression decisions in the Western United States," Ecological Economics, Elsevier, vol. 200(C).
    2. Rossi, David & Kuusela, Olli-Pekka, 2023. "Carbon and Timber Management in Western Oregon under Tax-Financed Investments in Wildfire Risk Mitigation," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 48(2), May.

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    More about this item

    Keywords

    Fire management; Suppression; Risk aversion; Downside risk; Cost plus net value change; Budgetary institutions;
    All these keywords.

    JEL classification:

    • Q23 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Forestry
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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