TE D PR OO F – 1 – © 2008 The Authors Journal compilation © 2008 Japanese Economic Association

Land prices may reflect a premium compensating for earthquake risks in that risk averse agents tend to avoid land with a high degree of danger posed by earthquakes. The current paper empirically addresses that issue 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 even since the 1980s after controlling for other possible effects on land pricing. In contrast, there is no significant evidence for price impacts of potentially important events such as the Great Hanshin-Awaji Earthquake and the disclosure of the hazard map. In addition, this paper carefully examines the consistency of the estimated magnitude of earthquake risk premiums within a framework of the expected utility hypothesis, thereby proving an extremely strong aversion toward a given unit of earthquake risks. JEL Classification Numbers: R14, R22, G11. 1