Regulating land development in a natural disaster-prone area: The roles of building codes

Implementing mandatory building codes is a major approach to preparing for natural disasters. Using a simple hybrid model which considers expected utility and spatial equilibrium, this paper analyzes the roles as self-insurance and self-protection played by building codes for regulating land development in a disaster-prone area. Positive externalities of self-insurance and self-protection justify the implementation of mandatory building codes. The net benefits of building codes are capitalized into land rents which, in turn, require responses in the design of optimal codes. Through impacting land market, community-wide socioeconomic characteristics of the area such as population, wage, and land area share of the risky region are found to have effects on the optimal levels of expenditure on self-insurance and self-protection. It is shown that consumer preferences and production functions for self-insurance and self-protection determine the signs of such effects which are reinforced or offset by competition for locations in the land market. Effects from changes in productivity levels and risk structure are also described.

► We analyze the roles as self-insurance and self-protection played by building codes. ► Hybrid models consider expected utility and spatial equilibrium. ► Net benefits of building codes are capitalized into land rents. ► Consumer preferences and production functions are major determinants. ► Competition for locations in the land market play important roles.