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Pricing Climate Risks: Evidence from Wildfires and Municipal Bonds

Author

Listed:
  • Woongchan Jeon
  • Lint Barrage
  • Kieran James Walsh

Abstract

How are financial markets responding to anticipated climate-driven wildfire risk increases? Combining high-resolution meteorological predictions and land use pattern maps with detailed US municipal bond data, this paper finds that municipalities facing higher future wildfire risk increases are already having to pay substantially higher borrowing costs as a result. A one standard deviation increase in future wildfire exposure is associated with a 23-basis point rise in school district bond spreads, corresponding to 42% of the sample mean. Borrowing cost impacts are significantly larger in areas with higher minority population shares and heavier reliance on local revenue sources.

Suggested Citation

  • Woongchan Jeon & Lint Barrage & Kieran James Walsh, 2024. "Pricing Climate Risks: Evidence from Wildfires and Municipal Bonds," CESifo Working Paper Series 11447, CESifo.
    • Handle: RePEc:ces:ceswps:_11447
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp11447.pdf
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    References listed on IDEAS

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    2. Lala Ma & Margaret Walls & Matthew Wibbenmeyer & Connor Lennon, 2024. "Risk Disclosure and Home Prices: Evidence from California Wildfire Hazard Zones," Land Economics, University of Wisconsin Press, vol. 100(1), pages 6-21.
    3. Gellman, Jacob & Walls, Margaret A. & Wibbenmeyer, Matthew, 2023. "Welfare Losses from Wildfire Smoke: Evidence from Daily Outdoor Recreation Data," RFF Working Paper Series 23-31, Resources for the Future.
    4. Alecia W. Cassidy & Elaine L. Hill & Lala Ma, 2022. "Who Benefits from Hazardous Waste Cleanups? Evidence from the Housing Market," NBER Working Papers 30661, National Bureau of Economic Research, Inc.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    wildfires; climate risk; municipal bond; fiscal costs of climate change;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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