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Journal of Risk and Uncertainty

, Volume 40, Issue 2, pp 181–196 | Cite as

Do people respond to low probability risks? Evidence from tornado risk and manufactured homes

  • Daniel Sutter
  • Marc Poitras
Article

Abstract

Whether people perceive and respond to low-probability natural hazards is a research question of considerable policy relevance. We obtain evidence by considering the response of housing choice to tornado risk for manufactured homes. The vulnerability of manufactured housing, combined with its growing share of the U.S. housing market, has led to proposed mandates for community shelters in mobile home parks. Expected utility theory, however, predicts that households should account for tornado risk in their housing choice. We test for an effect of tornado risk on manufactured housing demand using cross-sectional state data, as well as counties in three tornado prone states. We find that people do respond to tornado risk; our estimates indicate that each expected annual state tornado death per million residents reduces demand for manufactured homes by about 3%. The estimated quantity effect is consistent with the market studies of the price elasticity of manufactured homes.

Keywords

Expected utility Tornadoes Risk perception Mobile homes Natural hazards 

JEL Classification

Q27 D81 

Notes

Acknowledgments

We thank the editor and two anonymous referees for helpful comments. An earlier draft of this paper was presented at the Southern Economics Association meetings. Harold Brooks and Brent McAloney of NOAA for supplying us with the data on tornado fatality locations.

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Copyright information

© Springer Science+Business Media, LLC 2010

Authors and Affiliations

  1. 1.Department of Economics and FinanceUniversity of Texas—Pan AmericanEdinburgUSA
  2. 2.Department of Economics and FinanceUniversity of DaytonDaytonUSA

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