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Risk externalities
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Shafran, 2007
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Received 20 June 2007
Revised 1 May 2008
Available online 8 May 2008
JEL classification:
Q54
D81
R20
Homeowners living in the wildland–urban interface must decide whether or not to create a defensible
space around their house in order to mitigate the risk of a wildfire destroying their home. Risk
externalities complicate this decision; the risk that one homeowner faces depends on the risk mitigation
decisions of neighboring homeowners. This paper models the problem as a game played between
neighbors in a wildland–urban interface. The model explains why sub-optimal investment in defensible
space is likely and provides insights into the likely effectiveness of programs designed to encourage
households to increase their defensible space. Data from Boulder County, Colorado confirm that a
household’s defensible space decision depends on the defensible space outcomes at neighboring sites.
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Nunes and VanDenBergh, 2004
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Abstract. Harmful algal-bloom species (HABs) are invasive exotic species that are primarily intro-
duced in North European waters through ballast water of ships. Some produce important damages
to the marine ecosystem such as the red tides that cause a massive destruction of marine living
resources, including fish and bottom-living animals. Others are responsible for the production of
thick foams with repellent odors and the coloration of the beach water, causing important damages
on beach recreation. This article reports a monetary valuation study of a marine protection program.
This program focuses on the prevention of HABS along the coastline of the Netherlands. It entails
the construction of a ballast water disposal treatment in the Rotterdam harbor and the implementation
of a monitoring program of the water quality in the open sea along the North-Holland beaches. The
valuation study is based on a questionnaire undertaken at Zandvoort, a famous Dutch beach resort.
The economic value of the marine protection program includes non-market benefits associated with
beach recreation, human health and marine ecosystem impacts. Both contingent-valuation and travel-
cost methods are used. These valuation techniques have not yet been applied to value HABs damages.
The valuation results indicate that the protection program makes sense from an economic perspective
as long as its cost is, in any case, less than 225 million euro, and possibly less than 326 million euro,
depending on how survey refusals are dealt with.
