2023 Volume 79 Issue 11 Article ID: 23-00140
This study formulates a dynamic stochastic general equilibrium model that explicitly considers the role of the construction sector. Then, this study analyzes the relationship between national disaster risk and the optimal size of the construction sector in terms of capital stock and number of employees. This study obtains the following findings with the analysis. The risk aversion tendency of the households affects whether the disaster risk increases the optimal size of the construction sector in the normal period, when disasters have not hit for a long time. When the risk aversion is high, the optimal size of the construction sector in the normal period increases, and vice versa. Considering the high risk premium of disaster insurance in Japan, the presence of disaster risk will increase the optimal size of the construction sector in the normal period. The size of the construction sector should be expanded to the optimum level as soon as possible when the increase in disaster risk becomes apparent.
