PUBLICATION

Liao, W.C., Luo, Y.* and Sun, Y., 2022. Information Shock of Disaster and Hazard: Impact of Kaohsiung Gas Explosions and Risk Disclosure on the Equalizing Difference in the Housing Market. Real Estate Economics

Abstract: Disasters damaged economies and markets. Manystudies inquired how calamities affected household risk perception and home value to understand the hazards’influences on expected utility. A remaining challengeis identifying equalizing difference, a necessary spatial equilibrium condition, keeping households indifferent among properties with different disaster risks. We fill this gap, analyzing a quasi-natural experiment withtwo events: the 2014 Kaohsiung Gas Explosions and subsequent disclosure of underground petrochemical pipelines. A spatial model with prospective reference theory predicts home-value changes after each event forareas with different risks and distinguishes the equalizing difference from price changes induced by risk adjustments. Difference-in-differences (DD) analyses uncover an equalizing difference worth 2.6% home value compensating for households’ exposure to the petrochemical hazard, besides risk-adjustment price changes concerned by existing DD studies. The equalizing difference shrank with distance to hazard and time. Also,the neighborhood struck by the disaster has regained energy, a finding with implications for urban resilience.

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