The Market for Tornado Safety: Analysis of Applications

Abstract

We examine applications to the Oklahoma Saferoomlnitiative, which offered rebates to residents for construction of an in-home tornado shelter. Markets for risk mitigation are prone to market failure because consumers treat low probability, high consequence events as zero probability events. Tornado and tornado casualty rates vary across Oklahoma counties, and according to expected utility theory the application rate should vary accordingly. We confirm this prediction. Recent tornadoes and casualties, not surprisingly, predict application rates better than fifty year totals. (D81, Il 8)