The social cost of the Black Saturday bushfires

The Intergovernmental Panel on Climate Change have predicted with high confidence that the risk of bushfires will increase in the future. As this risk increases, so too does the need for appropriate policy responses. In developing these responses, costs need to be weighed against benefits. To fully appreciate the benefits of bushfire risk mitigation policies and strengthen the development of social policies around such events, it is necessary to include the psychological cost of experiencing these events. In this study, we employ the "life satisfaction approach" to place a monetary estimate on the cost of Australia's Black Saturday bushfires (Australia's worst bushfires on record). Results reveal that the bushfires significantly reduce self‐reported levels of life satisfaction, with an implied willingness‐to‐pay of AUD 2,991 in terms of annual household income, or AUD 1,039 per capita, to reduce by one percent the extent to which an individual's immediate local area was affected by the Black Saturday bushfires. In doing so, we identify an apparent gap between current levels of expenditure on bushfire response and mitigation, and that amount which (with the inclusion of associated social benefits) would be welfare maximising.This paper uses unit record data from the Household, Income and Labour Dynamics in Australia (HILDA) survey. The HILDA Project was initiated and is funded by the Australian Government Department of Social Services (DSS) and is managed by the Melbourne Institute of Applied Economic and Social Research (Melbourne Institute)