Author(s)

VALERIA SCAPINI, EDUARDO ZUÑIGA

Abstract

Natural disasters generate great economic costs related to damaged houses or loss of infrastructure. In this context, the case of Chile is particularly interesting, as it is located in the “Pacific Ring of Fire” and is considered one of the most seismically active countries in the world. Based on the evidence from the 2010 earthquake, an empirical study was carried out using the panel survey CASEN Post earthquake. We model a Markov chain whose states represent housing conditions (good, regular and bad) and where each instance of the chain corresponds to the occurrence of an earthquake. For this model, we calculate the transition probabilities of moving from one state to another and find the stationary probabilities of the chain. We interpret these probabilities as the percentage of time that houses spend in each state in the long term. We propose a method to calculate the expected cost of full reconstruction of houses. This information could be useful to policy makers for evaluating if it is necessary to repair the damage or wait for the destruction of the house and rebuild it.

Keywords

natural disasters, earthquake, Markov chain, damage assessment, reconstruction cost