The Economic costs of wildfires.

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It has been another brutal wildfire season in the western United States. The Mendocino complex fire in Northern California is the largest in the state’s history, with smoke from the fire blowing all the way across the country to the east coast. Colorado, Utah and Oregon have also experienced one of the worst fire seasons on record. Montana on the other hand was having a relatively mild fire season thanks to an unusually wet winter and spring. But our luck has recently run out, as fires have raged in Glacier National Park, Big Sky and Bacon Rind, among other places. In addition, several hundred fires are burning in British Columbia, some of which are blowing copious smoke across Montana. The smoky haze here in Bozeman so familiar from last summer is currently back in a big way.

Last summer I posted about some recent research on the health impacts of wildfires. With wildfires and smoky air back in our lives I thought I’d give a broader overview of the economic impacts of wildfires and the associated pollution. For Montana specifically, in January the University of Montana’s Institute for Tourism and Recreation Research released a report estimating that wildfires prevented 800,000 tourists from visiting the state, costing roughly $240 million in lost tourism revenue, about 0.7% of the state’s GDP (the overall cost is higher still, as the $240 million estimate does not consider the cost of fighting the fires, property damage, and any lost businesses). This summer’s wildfire tourism impact is likely to be smaller, but still considerable given how the Glacier fires have visitors scrambling away.

Wildfires also have complex effects on nearby labor markets. A study from the University of Oregon found that nearby fires actually increase employment and wages on average in the short term, due to labor demand for suppression efforts outweighing other negative effects. However, in the longer term wildfires lead to labor market instability due to heightened uncertainty and seasonal variation, particularly in tourism and natural resource sectors.

Another paper published in the Journal of Environmental Economics and Management in November of last year looked at weekly variation in air quality and how it impacted hours worked in Lima, Peru. The authors find that moderate levels of pollution (“moderate” being similar to the pollution Montana is currently experiencing due to wildfires) significantly affect the labor supply of households with small children or elderly adults, who are more susceptible to pollution. They estimate that such households reduce their average labor supply by seven hours during weeks of moderate pollution. It is likely that this reduction comes from working-age members of the household forgoing work in order to care for the susceptible household members. At high levels of pollution, all types of households significantly reduce their labor supply.

Wildfires also impact local property values, even if the property is not directly damaged by the fire. A recent working paper examined property value effects in an urban context, finding that homes in the Los Angeles and San Diego basins that were nearby wildfires saw their values decrease by an average of 3-4%, rising to 4.5% if the burn scar is visible from the property. Another recently published paper finds even larger decreases in values of homes within 2km of a wildfire, but also finds that this effect is only temporary. Property values return to pre-fire levels after 2-3 years, which may reflect a somewhat irrational perception among buyers that houses are at decreased risk after a relatively short period without a fire.

Wildfires impact local economies in a variety of direct and indirect ways. Economists’ attempts to understand and quantify these impacts is a small literature but one that is rapidly growing in importance. Wildfire seasons are predicted to only grow longer and more intense as global temperatures continue to rise.

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About Author

Brock Smith is an Assistant Professor in the Department of Agricultural Economics and Economics at Montana State University. He received a PhD from UC-Davis in 2013 and spent three years as a Research Fellow at the Oxford Centre for Analysis of Resource Rich Economies. He mainly studies effects of oil and natural gas shocks in both an international and domestic US setting.

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