Benefits and Costs of Earthquake Resistant Buildings

A methodology is presented for estimating the costs and benefits of building earthquake resistant buildings. The technique draws upon the economic approach to valuing risks to life, as well as recent engineering and geological studies of earthquakes and the damage they cause. The analysis focuses on the Southern San Andreas Fault in the Los Angeles, California, area. The methodology begins with an expected utility model that derives an individual's willingness to pay for the increased safety and reduced property losses afforded by resistance. The probability of a damaging quake is estimated using a geological record of past events. A Weibull distribution is employed to predict the fault's time-to-failure, given that the last major quake was in 1857. It is shown that the expected benefits of resistance will be greater or less than the costs of compliance depending upon the real discount rate used. However, the expected benefits increase every year that an earthquake does not occur, since the probability of a quake increases. The expected benefits drop sharply below the costs after a quake.