Reducing the negative impact of wildfire disasters through multi-scenario risk analysis of land investment

Abstract

Natural meteorological and climatological hazards and vulnerable vegetation are frequent triggers of natural disasters, such as wildfires. These cause loss of life and significant economic damage, likely to increase due to climate and socio-economic changes. The increase in wildfires in recent decades has affected the decision-making of technocrats and policy experts and created the need for more sophisticated risk management. This paper develops a theoretical framework for reducing the economic impact of wildfire risk on forests. Also provides insight into land use decisions regarding losses that this increased risk of forest land management can cause. The impact of wildfire risk on economic land value is evaluated by comparing three scenarios, i.e. the deterministic risk-adjusted land expectation value with its risk-free counterparts calculated assuming the stationary risk and predicted increasing risk as time goes by. Also, for this purpose, we evaluate the economically optimal length rotation period pine stands and the risk premium. Fire risk is described as the probability of pine stands destruction due to their age and meteorological conditions in the experimental area Záhorská lowland (western Slovakia). Our findings highlight the importance of alerting forest policymakers to carefully incorporate assessment of the increasing risk of random natural disasters due to climate change into sustainable forest management. The study's results will also help current or future forest owners estimate and evaluate the economic/investing risk when buying or selling forest land.