Does the Salience of Risk Affect Large,Risky Asset Prices?

Cloe Garnache (University of Oslo)

September 28, 2020, 11:00–12:15


Room Auditorium 6 - Level 3

Environment Economics Seminar


This paper documents that when a southern California home gets designated to a wildfire risk zone, its price drops by 11% relative to homes just outside the designation boundary. Whereas the risk designation is discontinuous, the underlying risk is continuous | suggesting the price effect is due to greater risk salience rather than greater risk. Moreover, after a nearby fire, transaction prices of homes with a view of the burn scar drop by 5% relative to the prices of otherwise similar homes | an effect significant only for the first year post-fire and too large to be explained by visual disamenities alone.