Essays in Economics: Analyzing Homeowners’ Willingness-to-Pay for Wildfire Risk Mitigation, and the Overlapping Generations (OG) Model of Interest Rate Dynamics.
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Authors
Chowdhury, Md Niaz Murshed
Issue Date
2023
Type
Dissertation
Language
Keywords
Alternative Title
Abstract
This dissertation examines the estimation of homeowners’ willingness-to-pay for wildfire risk reduction and the determination of interest rates. The first chapter employs a contingent valuation approach to estimate homeowners’ willingness-to-pay (WTP) for wildfire risk reduction in 35 Wildland Urban Interface (WUI) communities in Nevada. Survey respondents were presented with two potential risk reduction programs: A private program focusing on individual home and surrounding vegetation modification, and a public program targeting community-wide risk through fuel management treatments. In this study, we employed a contingent valuation approach to estimate homeowners’ willingness-to-pay (WTP) for wildfire risk reduction in 35 WUI communities in Nevada. We presented respondents with two potential risk reduction programs: a private program focusing on individual home and surrounding vegetation modification, and a public program targeting community-wide risk through fuel management treatments. We found significant WTP for private program risk reduction but not for public program risk reduction. Our work also identifies a number of factors that my bias WTP estimates if not considered. These include respondent’s previous expenditure on risk mitigation, the possible loss level from fire, concern about the non-financial costs of risk mitigation, and recognition of the communal (i.e. positive externality) benefits of fire risk reduction. The second chapter presents the Weil (1987) overlapping generations (OG) model, which contains an exogenous probability that the economy’s bubble may burst but extended to allow capital accumulation as in Banerjee (2021). Like Weil (1987), we find that the rate of return on the bubble asset must generally be greater than the rate of return on the capital backed asset. Like Banerjee (2021), but in contrast to Weil (1987), a gap between the interest rate paid on the capital backed asset and capital rental rate must occur. Thus, we provide enhanced knowledge of how the rates of return earned on assets relate to the productivity of capital and the capital rental rate.The third paper extends the OG model of Weil (1987) by adding capital accumulation and stock market clearing as introduced in Banerjee and Pingle (2023). The addition of the stock market clearing eliminates the indeterminacy and inefficiency from Weil's model, resulting in a unique, Pareto efficient equilibrium. Because the bubble may burst in our model, as in the Weil model, we like Weil find that the rate of return on bubbly assets must exceed that on capital backed asset to offset the risk of bubble bursts. In contrast to Weil, we find that the path for the bubble is not influenced by a change in the perception that the bubble will burst. The bubble will form if it can form, and it is the rate of return on the bubble asset that will adjust in response to an increased perception that the bubble will burst.