VALUING THE RISK OF IMPERFECT INFORMATION: CHRISTCHURCH EARTHQUAKE

Purpose This is a background discussion and literature review paper relating to the application of methods to measure the impact of a significant earthquake event on house prices. The purpose of this review is to select the appropriate methodology to the assessment of impacts on Christchurch housing prices. The results of this will form part of a further research paper. Approach Previous literature specific to hedonic modelling of earthquake events and their impact on housing is limited. Therefore, a wider review of natural disaster events and types of methodologies are undertaken in this paper. Findings The Christchurch earthquake land zoning process combined with government compensation that followed the 2010 earthquake is unique. The literature review suggests that a hedonic pricing modelling using a Difference-in Difference specification may be the most appropriate model for an event of this nature. Value of research It is likely that the outcomes of further research will assist in the identification of risk management strategies for the insurance industry, central and local governments. This type of research also has application for other earthquake prone cities as well as other natural disaster risk zones such as flood zones, hurricane and storm surge risk zones along coastlines.