CONTRACTING OVER COMMON PROPERTY: COST-SHARE CONTRACTS FOR PREDATOR CONTROL

Predator control cost-share contracts among livestock producers in North America date back to 1630. A model is developed which provides refutable implications for the structure and distribution of these contracts over time and space. Historical and contemporary state and county level data on sheep producer coyote control generally support the model.contract theory, wildlife, livestock production, Industrial Organization, Resource /Energy Economics and Policy,

LIABILITY, REGULATION AND ENDOGENOUS RISK: INCIDENCE AND SEVERITY OF ESCAPED PRESCRIBED FIRES IN THE UNITED STATES

Prescribed fire is a useful but risky method for reducing general wildfire risk and improving wildlife habitat, biodiversity, timber growth, and agricultural forage. In the past the fifteen years, laws is some states have been adopted to support the use of prescribed fire. This article examines the effect of liability law and common regulations on the incidence and severity of escaped prescribed fires in the United States from 1970 to 2002. Regression results show that stringent statutory liability law and regulation tends to reduce the number and severity of escaped prescribed fires on private land, but not on federal land where state liability law does not directly apply.endogenous risk, prescribed fire economics, liability law

FIREFIGHTS AND FUEL MANAGEMENT: A NESTED ROTATION MODEL FOR WILDFIRE RISK MITIGATION

Scientists and policymakers are increasingly aware that wildfire management efforts should be broadened beyond the century-long emphasis on suppression to include more effective efforts at fuel management. Because wildfire risks change over time as vegetation matures, fuel management can be viewed as a timing problem, much like timber harvest itself. We develop a nested rotation model to examine the fuel treatment timing issue in the context of a forest environment with both timber value 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 non-timber values-at-risk such as wildland- urban interface property is not accounted for in private fuel management decisions.wildfire, fuels management, fire suppression, optimal rotation, wildfire economics.

A Bivariate Markov Regime Switching GARCH Approach to Estimate Time Varying Minimum Variance Hedge Ratios

This paper develops a new bivariate Markov regime switching BEKK-GARCH (RS-BEKK-GARCH) model. The model is a state-dependent bivariate BEKK- GARCH model, and an extension of Gray’s univariate generalized regime- switching (GRS) model to the bivariate case. To solve the path- dependency problem inherent in the bivariate regime switching BEKK-GARCH model, we propose a recombining method for the covariance term in the conditional variance-covariance matrix. The model is applied to estimate time-varying minimum variance hedge ratios for corn and nickel spot and futures prices. Out-of-sample point estimates of hedging portfolio variance show that compared to the state-independent BEKK-GARCH model, the RS-BEKK-GARCH model improves out-of-sample hedging effectiveness for both corn and nickel data. We perform White’s (2000) data-snooping reality check to test for predictive superiority of RS-BEKK-GARCH over the benchmark model, and find that the difference in variance reduction between BEKK-GARCH and RS-BEKK-GARCH is not statistically significant for either data set at conventional confidence levels.bivariate GARCH, require switching, hedging

PRESCRIBED FIRE: LIABILITY, REGULATION, AND ENDOGENOUS RISK

This paper compares the incentive effects of strict liability and negligence rules when timing of activity affects environmental risk. The model is developed in the context of prescribed fire as a land management input, with an extension to the related problem of wildfire risk mitigation through vegetation management. The use of prescribed fire for land management and wildfire risk control is increasing in parts of the United States, and related liability and regulatory law is changing with it.Resource /Energy Economics and Policy,

THE POLITICAL ECONOMY OF RIVER RATS AND IDAHO'S FOUR RIVERS WHITEWATER RAFTING LOTTERY

Resource /Energy Economics and Policy,

An Econometric Model of Wildfire Suppression Productivity

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. This paper 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).wildfire suppression, productivity

Repeated Auctions with the Right of First Refusal

This paper characterizes a set of Nash equilibria in a first-price sealed-bid repeated auction with the right of first refusal using two bidders and asymmetric information regarding the bidders’ value distributions. When contract value is constant from one auction to the next and winners’ values are publicized, agents retain the value of incumbency and bids are identical to one-shot auctions. When each agents’ contract values are random across auctions, agents choose to bid away the full expected value of incumbency, providing a measure of the value of information in this context.repeated auction, right of first refusal

Welfare Trade-offs between Transferable and Non-Transferable Lotteries

The Four Rivers lottery run by the National Forest Service distributes the opportunity to raft four sections of rivers in Idaho through a non-transferable lottery. The restriction of trade and focus on equity in distribution creates a deadweight loss in total surplus compared with a market or auction system. If the NFS allowed the transferring of permits, then there exists a potential for rafters to gain surplus in trade. However, non-rafters have an incentive to enter the transferable lottery to make a profit from trade. Using the NFS lottery as a guide, this paper examines welfare under the two lottery system to understand how changes in transferability affect the welfare of users and non-users, and the revenues of the government. Since variables, such as number of permits, permit fees, and application fees, also impact welfare, we derive comparative statics for these variables to demonstrate how these government controls affect rafter welfare, non-rafter welfare, and government revenue differently under transferable and non-transferable lotteries. Our results show the welfare trade-offs rafters have between transferable and non-transferable lotteries.Resource /Energy Economics and Policy,

Optimal wildfire insurance in the wildland-urban interface in the presence of a government subsidy for fire risk mitigation

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.Insurance; Insurance Companies, Government Policy and Regulation, General, Government Policy