Willingness to Pay to Reduce Wild Fire Risk in Wild land-Urban Interface: A Comparative Analysis of Public Programs and Private Actions
Creators: name: Christman, Laine
name: Kimberly, Rollins
name: Micheal, Taylor
name: Sohan, Agbonlahor
name: Christman, Laine
name: Kimberly, Rollins
name: Micheal, Taylor
name: Sohan, Agbonlahor
Publisher: name: Unknown
Year: 2014
Subjects: subject: Community/Rural/Urban Development
subject: Institutional and Behavioral Economics
subject: wildfire risk
subject: wildland-urban interface
subject: mitigation
subject: contingent valuation

description: Wildfire threat is an intrinsic part of life in rural communities in the arid Western U.S. Western U.S. continues to experience a rapid population growth of Wildland-Urban Interface (WUI) areas, an increase in the frequency of wildfire due to increase human-caused ignition (Cardille et al. 2001), and overall fire severity due to over-accumulation of vegetation density on the surrounding public lands. Due to these trends, wildfire tends to have significantly higher economic cost associated with communities located in the WUI relative to wildfires on more remote public lands since WUI residences have an increased chance of damage (NIFC 2004). Fire protection services within these rural areas are scarce however; fire protection can be leveraged by wildfire risk mitigation actions done to both private properties and public lands adjacent to WUI areas. Private mitigation actions include creating a defensible space zone and use of fire resistant construction materials on the house, such as concrete siding or tiled roofing. Defensible space reduces the chance a wildfire will move from the public lands and damage or destroy a house by eliminating the combustible material and vegetation on the landscape within 30 feet of the home and promotes the use of fire resistant landscaping, i.e., well-irrigated lawns, deciduous shrubs and trees, xeriscaping, etc. Fire resistant construction materials reduce the chance a house will catch fire, given it ignites on the property. Public fuel reduction treatments remove strips of the native vegetation around the community creating a barrier between the public lands and the WUI which fire protection services can use to prevent fire from threatening homes. These public actions can be targeted to high priority areas within the community. Private and public provisions to reduce risk can impose considerable costs to residents and the individual risk of damage to a residence from a wildfire is rather low, therefore decisions about investment in these provisions can be seen as a gamble due to the uncertainty regarding the outcome. In one prospect, the resident can pay nothing and face uncertainty about a loss incurred from a wildfire. In another prospect, the resident can reduce the uncertainty by investing in risk mitigating provisions. Financial incentives for WUI residents in areas of elevated fire risk can be imposed in the form of policies and cost-sharing programs such as block grants. Such incentives can relieve some of the burden placed on residents and increase of overall level of defensible space thereby decreasing the level of risk facing WUI residents. Other incentives include educational components that help residents understand the risk they face. We explore how residents' value these provisions when the stakes are high but the chances of loss are low, as well as, how the value changes between public and private risk reduction provisions. Moreover, we explore the welfare loss given exogenous shifts in wildfire risk. Expected Utility Theory, a generally accepted and widely applied normative model of rational choice (Kahneman and Tversky 1979), would suggest rational individual will base investment decisions under uncertainty on comparison of expected utilities between the two prospects (Mongin 1997). The more risk adverse the individual, the more willing the individual is to forego a riskier situation for a more certain outcome. To investigate these issues, we measure the value of wildfire risk reduction to individual WUI residents using an experimental design based on a stated preference framework. We surveyed residents living in rural communities in Nevada that are representative of the different vegetation types, community designs, and population densities found within the Western U.S. We provide the homeowner two means to reduce the risk. The first method is investment in private defensible space on the property to lower the risk to the homeowner's property. The second method is investment is a community-wide fuel treatment program completed on public lands surrounding the community to lower the overall risk to the community and subsequently to the homeowners. In each case the homeowner was asked to state whether they would be attain those provisions at a given dollar amount. For the private provision the respondent was asked to pay a one-time cost. In the public provision, the cost was an annual fee. Within the survey instrument, the risk reduction from investment is explicitly stated to the homeowner. This reduction is explained as a decrease in the probability of damage to the house if provisions are taken. We employed a discrete choice, polychotomous, contingent valuation method that allowed the level of response intensity to be directly incorporated into the response option. The experiment design included 72 versions of the private provision and 24 versions of the public provision, which were randomly assigned to the respondents. For both provisions, there are multiple risk reduction categories that were randomly assigned to the respondents. Similarly, for both there were two year spans for which the risk reduction was valid, e.g, 5 or 10 years. Within the private provision there are three possible loss amounts ($50,000, $100,000, $200,000) to the homeowner, should a wildfire reach the home, which are also varied across respondents. Within the public provision, no loss amount was specified in order to view residents' value for reducing wildfire risk to the community in general. Our results indicate that willingness to pay (WTP) for private provisions of defensible space are higher than public provisions, i.e., $297 for the private provision and $47 per year for the public provision on average. When considering a 5 year time period the two WTP measures are relatively similar. When considering a 10 year period, the WTP for the public provision becomes greater however our models reveal respondents' WTP are not sensitive to the different time horizons. The similarity between the two provisions indicates that the incentives from private or public program would likely have similar outcomes in reducing risk, therefore it should be left to the policy makers to determine the priority each provision has to a given community. Our results for both provisions indicate that as risk reduction increases, so does WTP. For the private provision the average WTP for a 1% reduction is $147 and increases to $450 for a 4% reduction, while the average annual WTP for a 1% reduction is $36 and increases to $51 for a 4% reduction, suggesting people are considering the magnitude of the risk reduction when making decision about investment in fire mitigation provision across the board. From a policy perspective this would indicate people have a higher value for programs that strategically target areas where risk reduction is most effective. Furthermore, educational programs that inform residents about the how effective mitigation actions are from both private property and within the community as a whole can increase support of the provisions. Moreover, because the risk reduction is identical across the two provision but the expected value i.e., the reduction of risk and loss amount, was explicitly stated to the homeowner only for the private provision, the similarity between the two WTP estimates suggest that residents seem more concerned with the overall reduction in risk rather than the actual expected value gained from the provision. Furthermore, within the private provision our results reveal concavity in WTP over expected value which suggests the decreasing marginal value of investment. This finding is consistent with the EUT literature which assumes a diminishing marginal utility of wealth. This notion that marginal WTP incremental declines as expected value increases suggests incentives to increase private levels of defensible space only work up to a certain point. Beyond that, people begin to experience disutility with increased investment. Therefore, incentives to raise levels of defensible space in the most at-risk WUI communities must account for this lower marginal WTP and possible consider cost-sharing programs to offset this diminishing utility.