Risk Externalities, Wildfire Hazard, and Private Investment to Mitigate Wildfire Risk in the Wildland-Urban Interface

Homeowners in areas adjacent to wildlands – in the Wildland-Urban Interface (WUI) – can mitigate the risk that their home will be damaged in a wildfire by creating “defensible space” on their property. This article explores homeowners’ incentives to invest in defensible space using a unique data set on 35 WUI communities in Nevada. This is the first study to analyze homeowners’ incentives to invest in defensible space, comparing across both forested (alpine forest) and non-forested (sagebrush rangeland, pinyon pine and juniper woodland, grassland) communities. This article explores two explanations for perceived homeowner underinvestment in defensible space: (i) homeowners’ misjudging their wildfire risk and (ii) spatial interdependencies between neighbor’s defensible space investments due to risk externalities. We find no evidence to suggest that homeowners’ systematically misjudge their wildfire risk, though we do find evidence of strategic complementarities in defensible space investments due to risk externalities in certain communities, depending on predominant vegetation. Our results suggest that wildland fire policy to promote defensible space should focus on financial and regulatory barriers to investment in defensible space, rather than on educational programs, and that “tipping policies” to encourage early adopters to invest in defensible space may be appropriate in communities where the majority of homeowners have not invested in defensible space and whose predominant vegetation suggests the presence of strategic complementarities. JEL Classifications: D8O, Q54, R20