Earthquake Risks and Land Prices: Evidence from the Tokyo Metropolitan Area

The current paper empirically addresses risk aversion of households and firms toward earthquake risks using a hazard map compiled for the entire region by the Tokyo metropolitan government in 1998. It finds strong evidence for the impact of earthquake risks on land pricing; land prices have been substantially lower in risky areas than in safe areas. That impact became more evident in the 1990s than in the 1980s, indicating that households and firms were becoming more sensitive to earthquake risks. In addition, this paper carefully examines the consistency of the estimated magnitude of earthquake risk premiums within a framework of the expected utility hypothesis.