Three essays on wildfire economics and policy

This dissertation, which consists of three independent but related papers, investigates alternative management strategies to mitigate the risk of wildfire occurrence and to minimize the risk of financial losses from wildfires.; In the first essay, we discuss the economic tradeoffs between different fire mitigation techniques such as suppression and fuel treatment. We develop a nested rotation model to examine optimal fuel treatment timing in the context of a forest environment with both timber and non-timber values-at-risk. Simulations are performed for a ponderosa pine forest and discussed with a focus on three important aspects of wildfire management: (1) the economic tradeoffs between fuel treatments, suppression, and timber harvest (2) the effects of public wildfire suppression on private fuel management incentives, (3) externality problems when nontimber values-at-risk such as wildland-urban interface property is not accounted for in private fuel management decisions.; The second essay provides an empirical basis for a widely used economic model of wildfire management that seeks to minimize the sum of suppression costs and economic losses from wildfires, the cost plus net value change model of fire suppression (C+NVC). We estimate a model of suppression productivity for individual fires, where suppression productivity is measured in terms of the reduction in the estimated market value of wildfire losses. Estimation results show that at the margin, every dollar increase in suppression costs reduces resource damage by 12 cents, while each dollar invested in pre-suppression reduces suppression expenditures by 3.76 dollars. These results suggest that there is an over-allocation of fire management funds to suppression activities relative to prevention measures in terms of cost-effectiveness.; The third essay addresses the issue of wildfire insurance and risk mitigation policy in wildland-urban interfaces, where rapid economic development has become a growing policy concern. We investigate the effectiveness of a government subsidy and mitigation based insurance contracts at discouraging migration into the wildland interface and at inducing incentives for risk mitigation. We construct a model of the individual migration decision, where the individual maximizes expected utility defined over attributes of locations including cost of insurance and mitigation, wildfire damage, and the availability of a subsidy for reducing wildfire risks through fuel management. Our analysis shows that standard insurance policies provide inefficiently weak incentive for wildfire risk mitigation by offering a low insurance premium to high-risk landowners. We find on the other hand that in the presence of optimal government subsidy, contingent contracts provide an efficient solution where a homeowner chooses a mitigation level that maximizes social benefit and insurers provide actuarially fair contracts such that each individual is offered a premium of the exact value of her wildfire risk.