Abstract
In this article, we present evidence of the benefits of expected utility that is sensitive to rare events. Specifically, we estimate the treatment effect of reports on rare catastrophic tsunamis by using a land price hedonic approach. To identify this effect, we employed a difference in differences (DD) design. Ordinal expected utility predicts no effect since the probability of catastrophic events is sufficiently small to be ignored. However, the estimation result reveals a significant effect. This implies that ordinal expected utility derived from objective risk distribution may be inappropriate for the economic prediction of rare catastrophic events.
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This work is supported by JSPS (The Japan Society for the Promotion of Science) Grant-in-Aid for JSPS Fellows Grant Number 12J09136.
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Nakanishi, H. (2016). How the Change of Risk Announcement on Catastrophic Disaster Affects Property Prices?. In: Chichilnisky, G., Rezai, A. (eds) The Economics of the Global Environment. Studies in Economic Theory, vol 29. Springer, Cham. https://doi.org/10.1007/978-3-319-31943-8_25
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DOI: https://doi.org/10.1007/978-3-319-31943-8_25
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