A deadly wildfire in November 2018, named the Camp Fire, caused many deaths, destroyed
thousands of structures, and burned 150,000 acres. The fire led to a tragic loss of life, as well as
the near entire destruction of two communities, Paradise and Concow.
The utility PG&E was deemed to have responsibility for the ignition of the fire. This means that
those damaged by the fire have a legal claim to compensation from PG&E. (The size of potential
liabilities from this and other wildfires pushed the utility into bankruptcy.)
To assess the size of such compensation payments, as well as other penalties that might be
assessed by government agencies, courts need to decide on the value of the damages caused.
This exercise asks you to contemplate the valuation techniques discussed in our course with
respect to this case.
- Before you read anything more about the Camp Fire, I want you to think about what
the different costs of the fire were, and how big you’d expect each of them to be.
(Imagine that you are hired as an economist by the government, which is prosecuting
PG&E, and your job is to make sure that the government contemplates all possible costs
that they might want to include.)
a. Make a list of all the different costs that you can think of that you might want to
add up to get a total cost. (3 points)
b. Again, before you do any reading or research, ask yourself which of these costs
are going to be the largest. Identify what you think the three biggest cost
categories will be. List those three, and put down your guess as to what
percentage of the total costs would be associated with each category. (2 points)
c. After you have completed the items (a) and (b), read some background material
on the Camp Fire (Wikipedia is fine; there is a Frontline documentary; there is
extensive media coverage; and insurance company analysis of damages offers
empirical estimates.) Then, write 1 or 2 sentences saying what surprised you
about the size and components of damages. (1 point)
Note on grading: we will not grade this question for correctness. If you complete the items
above and demonstrate some effort, you will get full credit. But, if you take it seriously,
including doing (a) and (b) before you do any background reading, you will learn much more
from this exercise. - The most dramatic and tragic aspect of the fire was the loss of human life. In class we
discussed using the Value of a Statistical Life to put a dollar value on risks to human life.
The federal EPA has a suggested estimate of the VSL here that it recommends agencies
use in valuation. https://www.epa.gov/environmental-economics/mortality-riskvaluation
a. Find the EPA’s preferred estimate of the VSL; find the number of deaths reported as
directly caused by the Camp Fire; and use those numbers to calculate an estimate of
the value of lost life from the Camp Fire. Show your calculation. (1 point)
(There may be some ambiguity about specific values, so we will award full score to
things that are in a reasonable range.)
b. Is this a good estimate of the cost to society from lives lost during the Camp Fire
incident? Explain why or why not. (200 word limit) (4 points)
(For example, you may wish to argue that the VSL is not the right concept. Or, you
may wish to recommend tweaks to the EPA’s number. Or, you may wish to argue
that this is exactly the relevant number.) - In recent years, the salience of wildfire risk has changed dramatically in California. That
is, many people are suddenly more aware of and concerned about wildfire risk. This
suggests the possibility of getting a hedonic estimate of individual concern about
wildfire risk by looking at housing price changes.
a. Suppose we wanted to follow the model of the Davis paper on cancer clusters
discussed in class. Describe the four home price values that you would want to
collect in order to perform an analogous hedonic estimate related to the change
in perceived wildfire risk in Northern California. (That is, suppose we are going to
get an estimate using the mean home price from four groups of homes; what
would those four groups be in order to follow the model of the Davis paper?) (2
points) - Another valuation method we discussed is analysis of defensive expenditures.
a. What defensive expenditures might have been deployed in response to the
increase in wildfire activities? List all that you can think of. (2 points)
b. Suppose that you had a complete accounting of all expenditures every year for
the last twenty years in Northern California in each of these categories. Would
the change in expenditures over time represent a good estimate of the total cost
of the increase in wildfires? Explain why or why not briefly. (50 word limit; this
can be quite brief.) (2 points) - Finally, we have discussed contingent valuation and stated preferences more generally
as a method of evaluating damages. This question asks you to take the Exxon Valdez
case from class as a model and use it to consider how you would conduct a contingent
valuation survey that estimate the total willingness to pay of all California residents to
avoid a disaster similar to the Camp Fire. The class lecture describes three phases of a
study.
a. Describe how you would conduct phase 1 of a study for this disaster, following
the model from class. (75 word limit) (2 points)
b. Describe how you would conduct phase 2 of a study for this disaster, following
the model from class. (75 word limit) (2 points)
c. Describe how you would conduct phase 3 of a study for this disaster, following
the model from class. (75 word limit) (2 points)
d. Of the four main types of bias that we discussed in class, which are you most
concerned would cause bias in this situation. Explain why briefly. (75 word limit)
(2 points)
Sample Solution
