For example, if it is life insurance, a quake policy is not really protecting yourself. That is an interesting behavioral questionwhere there is some insight in terms of what people are likely to do. If you get risk-based insurance premiums, then people have a basis for judgment about allocating their resources, both capital and labor. The relationship between payments to replace damaged capital equipment and the true measure of immediate damage (based on the difference between expected rates of return and real wages and realized rate of return and real wages) is problematical. But even 1 or 2 percent of $50 billion in land values in the Bay Area is a nice piece of change. It is hard to determine what mitigation will do to one's personal insurance rates, for example. All rights reserved. The risk-based rates are based on the true probability rather than the perceived probability, and the benefits received from mitigating are going to be greater than the cost.Several policy questions can be explored. Therefore, we do not want it in our backyard, even if people are going to say that there are real benefits.I think one of the challenges in this whole area is to start categorizing human behavior as we look across these events. Earthquakes generate a variety of economic impacts and these impacts adversely affect the economy of the country or state. People are assumed to be rational, and they maximize their expected utility.A second assumption is that the loss-mitigation measure is amortized over a period of time, 20 years. 1979: Tumaco, Colombia: 7.7: IX: 600: The earthquake struck near the border between Colombia and Ecuador on the Pacific coast, producing 10-foot (3-metre) tsunami waves. KUNREUTHER: We also have in common a Chicago model as a part of our orientations, recognizing that it is limited in terms of what it can do.
If you are referring to a business-interruption-risk policy, that is another kind of a policy. Think, for a moment, 10 to 15 years ahead of time. Risk-based premiums would be an example of a real incentive to give people information, an instance where you do not have to make the requirement. The knowledge of scientists about the earthquake is limited but they are working on means to find the ways to predict the earthquake and ways to reduce the damage.However, we can reduce the effect of the earthquake to an extent by taking some precautionary measure and an effective disaster management system.Comment below if you have faced any earthquake and how you come out of the situation. If the losses are discounted by a very large discount rate, then the expected benefits are going to be much smaller than if a smaller discount rate were utilized. Is there a bill of sale or some kind of a contractor's bill that can be taken at face value, to prove that someone has done something to make theirbuilding safer? Of course, the key is that the expensive mitigation has been capitalized in the land value. It is not clear that disasters have permanent, long-run effects on economic growth of regions.The following presentation is a summary of the work of Ann Butler, NeIl Doherty, Anna Kleffhe, and Howard Kunreuther—at the Wharton School. These differential impacts may be related to the stage of the city's life cycle (whether it is old and aging or new and robust), the types of building stock in existence, the extent to which production is localized or dispersed nationally, the extent to which a major market is disrupted, the extent to which earthquake insurance is available and affordable, and the extent to which mitigation efforts have been undertaken.Unfortunately, there has been relatively little research on the topic of economic effects of serious earthquakes by economists.