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Quasi-experimental evidence for the importance of accounting for fear when evaluating catastrophic events

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  • Hayato Nakanishi

    (Kyoto University)

Abstract

This study examines the importance of accounting for rare but catastrophic events even if the probability of occurrence is extremely low, which is often ignored when expected utility is considered. To provide empirical evidence for this, we present the land price change related to the Japanese government’s report on the damage of catastrophic earthquakes and tsunamis whose probability of occurrence is extremely low. While this relationship has been studied in previous research, there are some notable shortcomings. Firstly, the control of the attributes between the treatment group, namely the land in the area where information is updated, and the control group is insufficient. Secondly, the link between rational behavior and the estimation result is not established enough. This study addresses these two points and updates the findings in this regard. We find that the estimated results presented herein match those proposed by previous works, confirming that the established link between the data and rational behavior suggests the importance of accounting for such catastrophic events even if their probability of occurrence is extremely low.

Suggested Citation

  • Hayato Nakanishi, 2017. "Quasi-experimental evidence for the importance of accounting for fear when evaluating catastrophic events," Empirical Economics, Springer, vol. 52(2), pages 869-894, March.
    • Handle: RePEc:spr:empeco:v:52:y:2017:i:2:d:10.1007_s00181-016-1084-6
    DOI: 10.1007/s00181-016-1084-6
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    Cited by:

    1. Yasuhiro Sato & Keita Shiba, 2021. "The impact of Tsunamis on land appraisals: Evidence from Western Japan," PLOS ONE, Public Library of Science, vol. 16(4), pages 1-14, April.
    2. Masayoshi Hayashi & Takafumi Suzuki, 2018. "Municipal Mergers and Capitalization: Evaluating the Heisei Territorial Reform in Japan," CIRJE F-Series CIRJE-F-1105, CIRJE, Faculty of Economics, University of Tokyo.

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    More about this item

    Keywords

    Catastrophic risk; Quasi-experiment; Difference-in-differences; Tsunami;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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