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Earthquake risk is the probability of suffering loss as a result of an earthquake. The supply of housing can be severely limited, owing to an earthquake, while the demand for various types of housing and housing characteristics may also change. Knowing the potential for impacts on housing markets, decision makers on both the supply and demand sides of the market, as well as public policymakers, take actions that lead to housing market adjustments. Therefore, earthquake risk is an important attribute of housing that economists study to better understand (a) its consequences on housing markets and (b) the decisions that people make in the face of earthquake risk.

Understanding Earthquake Risk

For many regions in the world, earthquake risk is an important attribute of living there. The U.S. Geological Survey (USGS) characterizes the earthquake risk at any particular location as the accumulation of three factors: (a) the seismic hazard, (b) the number of people and properties exposed to the hazard, and (c) the vulnerability of the people and property. Understanding the seismic hazard requires information along several dimensions. The hazard is determined, first, by the combination of the probability of an event and the magnitude of the event. More powerful earthquakes generally produce more intense shaking and increase the hazard. Locations with very low likelihoods of events have correspondingly low seismic hazards. Other important factors in understanding the seismic hazard at a particular location are the topography and soil type. Earthquakes of equal magnitude will be more hazardous if they cause tsunamis, liquefaction, or landslides, for example.

Like the seismic hazard, the second determinant of earthquake risk, the number of people and properties exposed to the seismic hazard depends on several factors. For example, urbanization is a complicated phenomenon driven by numerous factors, including longer life spans, technological innovation, population growth, and capital accumulation. One consequence of urbanization is that a greater percentage of the world's population and, correspondingly, more of the world's property, are exposed to seismic hazard. Moreover, continuing urbanization means that this trend will likely continue, making it increasingly essential to manage this risk efficiently.

The third determinant of earthquake risk, the vulnerability of the people and property, concerns the institutional arrangements that may moderate the damage from an event. For example, a similar magnitude event at two locations with similar geologic features and population-property densities may yield much less loss in one area, assuming that that area had more stringent building codes, code enforcement, monitoring, and emergency management. From a risk management perspective, it is most likely that actions to mitigate risks will target vulnerabilities and then, to a lesser degree, consider ways to change densities. With current technology, it seems unlikely that humankind will have many options for the control of seismic hazard.

The Importance of Earthquake Risk

It is hard to deny the importance of earthquake risk to housing policy. The images from the tsunami engulfing homes and buildings immediately after the Tohoku, Japan (2011), event; the Port-au-Prince (2010) event, where almost 100,000 buildings were destroyed; and the Eastern Sichuan, China (2008), event, where over 5 million buildings collapsed, are fresh reminders of the reality of the earthquake risk-housing relationship. In the United States, worries about the relationship increased in 2011 due to a rare Eastern Seaboard earthquake and suspicions that fracking shale for the production of natural gas has exacerbated the seismic hazard in what were previously thought of as low-risk areas in Pennsylvania and Arkansas.

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