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Spatial Variation in Flood Risk Perception: A Spatial Econometric Approach

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  • Atreya, Ajita
  • Ferreira, Susana

Abstract

We use hedonic property models to estimate the spatial variation in flood risk perception in the city of Albany, GA. In addition to knowing whether a property lies in the floodplain, we have a unique dataset with actual inundation maps from tropical storm Alberto that hit Albany in 1994. In the absence of information on the structural damages caused by a flood, having information on the actual inundated area can be useful to tease out the information effect of a flood shock from potential reconstruction or other costs. We find that the discount for properties in the inundated area is substantially larger than in comparable properties in the floodplain areas that did not get inundated. Our results suggest that not accounting for whether properties in the floodplains are also in the inundated area may overestimate the informational effect of large flood events. In addition of capturing an information effect, the larger discount in inundated properties captures potential reconstruction costs, and supports a hypothesis that homeowners respond better to what they have visualized (“seeing is believing”).

Suggested Citation

  • Atreya, Ajita & Ferreira, Susana, 2012. "Spatial Variation in Flood Risk Perception: A Spatial Econometric Approach," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124863, Agricultural and Applied Economics Association.
  • Handle: RePEc:ags:aaea12:124863
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    File URL: http://ageconsearch.umn.edu/record/124863/files/Ajita_Atreya_AAEA.pdf
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    References listed on IDEAS

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    1. Carolyn Kousky, 2010. "Learning from Extreme Events: Risk Perceptions after the Flood," Land Economics, University of Wisconsin Press, vol. 86(3).
    2. Kelejian, Harry H. & Prucha, Ingmar R., 2010. "Specification and estimation of spatial autoregressive models with autoregressive and heteroskedastic disturbances," Journal of Econometrics, Elsevier, vol. 157(1), pages 53-67, July.
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    4. Bernard Fingleton & Julie Le Gallo, 2008. "Estimating spatial models with endogenous variables, a spatial lag and spatially dependent disturbances: Finite sample properties," Papers in Regional Science, Wiley Blackwell, vol. 87(3), pages 319-339, August.
    5. Jared Carbone & Daniel Hallstrom & V. Smith, 2006. "Can Natural Experiments Measure Behavioral Responses to Environmental Risks?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 33(3), pages 273-297, March.
    6. Bernard Fingleton, 2008. "A generalized method of moments estimator for a spatial model with moving average errors, with application to real estate prices," Empirical Economics, Springer, vol. 34(1), pages 35-57, February.
    7. Irani Arraiz & David M. Drukker & Harry H. Kelejian & Ingmar R. Prucha, 2010. "A Spatial Cliff-Ord-Type Model With Heteroskedastic Innovations: Small And Large Sample Results," Journal of Regional Science, Wiley Blackwell, vol. 50(2), pages 592-614.
    8. David M. Harrison & Greg T. Smersh & Arthur L. Schwartz, Jr, 2001. "Environmental Determinants of Housing Prices: The Impact of Flood Zone Status," Journal of Real Estate Research, American Real Estate Society, vol. 21(1/2), pages 3-20.
    9. Speyrer, Janet Furman & Ragas, Wade R, 1991. "Housing Prices and Flood Risk: An Examination Using Spline Regression," The Journal of Real Estate Finance and Economics, Springer, vol. 4(4), pages 395-407, December.
    10. Bin, Okmyung & Landry, Craig E., 2013. "Changes in implicit flood risk premiums: Empirical evidence from the housing market," Journal of Environmental Economics and Management, Elsevier, vol. 65(3), pages 361-376.
    11. Okmyung Biny & Stephen Polasky, 2004. "Effects of Flood Hazards on Property Values: Evidence Before and After Hurricane Floyd," Land Economics, University of Wisconsin Press, vol. 80(4).
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    Keywords

    Risk and Uncertainty;

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