Monday, 17 November 2003: 4:00 PM
Developing a model for impacts of fire on local and regional economies
Recent analyses of the local economic impacts of large fires have resulted in lists of costs (Hayman fire 2002, Florida fires 1998) including suppression costs, loss of tourism, and timber market effects, among others. With the exception of the timber market effects, none of the other costs are considered in a market or economy-wide context. For example, suppression expenditures are a ‘cost’ to the agency, but can also be a ‘benefit’ to individual workers. Similarly, the destruction of homes results in costs to the homeowner (to cover uninsured costs of rebuilding) and costs to the (probably nonlocal) insurance company, but these expenditures by the insurance company and homeowner are a benefit to the contractors hired to do the rebuilding. In national accounting terms, changes occur in both the capital (homes and timber) and income (labor and supplies) accounts. We develop a model of an economy where changes in social welfare are measured resulting from large fires and fire seasons. This model is fundamentally different from the model used in agency-level decision making, the cost plus net value change model. Analysis from the agency perspective is parallel to models of the firm, but because so many of the effects of fire are external to the agency, optimal behavior of the agency (firm) that does not account for these externalities may result in social welfare losses.