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Is Timber Insurable? A Study of Wildfire Risks in the U.S. Forest Sector Using Spatio-temporal Models

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  • Xuan Chen
  • Barry K. Goodwin
  • Jeffrey P. Prestemon

Abstract

In the U.S. forest products industry, wildfire is one of the leading causes of damage and economic losses. While individual wildfire behavior is well studied, new literature is emerging on broad-scale (e.g., county-level) wildfire risks. Our paper studies wildfire risks using crucial informational variables across both spatial units and time periods. Several statistical models are used to quantify the risks. We develop several maximum likelihood estimation methods to account for spatio-temporal auto-correlation in conditional risks. A group index insurance scheme is proposed, and its associated actuarially fair premium rates are estimated and presented. Implications for wildfire management policies are also discussed.

Suggested Citation

  • Xuan Chen & Barry K. Goodwin & Jeffrey P. Prestemon, 2014. "Is Timber Insurable? A Study of Wildfire Risks in the U.S. Forest Sector Using Spatio-temporal Models," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 96(1), pages 213-231.
    • Handle: RePEc:oup:ajagec:v:96:y:2014:i:1:p:213-231.
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    File URL: http://hdl.handle.net/10.1093/ajae/aat087
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    Cited by:

    1. Feng, Xin & Dai, Yongwu, 2019. "An innovative type of forest insurance in China based on the robust approach," Forest Policy and Economics, Elsevier, vol. 104(C), pages 23-32.
    2. Cary, Michael A. & Frey, Gregory E., 2020. "Alley cropping as an alternative under changing climate and risk scenarios: A Monte-Carlo simulation approach," Agricultural Systems, Elsevier, vol. 185(C).
    3. Yiling Deng & Ian A. Munn & Haibo Yao, 2021. "Attributes‐based conjoint analysis of landowner preferences for standing timber insurance," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 24(4), pages 421-444, December.
    4. Wang, Yuhan & Lewis, David J., 2024. "Wildfires and climate change have lowered the economic value of western U.S. forests by altering risk expectations," Journal of Environmental Economics and Management, Elsevier, vol. 123(C).
    5. Sauter, Philipp A. & Möllmann, Torsten B. & Anastassiadis, Friederike & Mußhoff, Oliver & Möhring, Bernhard, 2016. "To insure or not to insure? Analysis of foresters' willingness-to-pay for fire and storm insurance," Forest Policy and Economics, Elsevier, vol. 73(C), pages 78-89.

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