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Cost-effectiveness of a market in spatially targeted natural flood management is robust to moderate transaction costs

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  • Leppert, Daniel
  • Aftab, Ashar
  • Scarpa, Riccardo

Abstract

Agriculture can contribute to catchment flooding via land use change. The viability of natural flood management (NFM) projects differs substantially between farms, which motivates research into spatially targeted NFM schemes. This paper proposes a hypothetical market in NFM contracts with exchange rates (‘trading ratios’) that incentivise farmers to voluntarily reallocate NFM contracts to farms where the land is most suitable for NFM. Voluntary trading is theorised to alleviate concerns expressed by farmers about unfairness with targeted payments for flood management. This is the first cost-effectiveness analysis of a hypothetical market in NFM. The cost is estimated through a discrete choice experiment with a representative sample of English farmers. The effectiveness of NFM is simulated using a hydrological connectivity computer model. Results show that trading can represent significant annual cost saving per farm across simulated schemes. A higher transaction cost reduces the cost savings achievable from trading, although even at 10% of the payment, trading reduces the overall cost by no less than £10,000 annually.

Suggested Citation

  • Leppert, Daniel & Aftab, Ashar & Scarpa, Riccardo, 2026. "Cost-effectiveness of a market in spatially targeted natural flood management is robust to moderate transaction costs," 100th Annual Conference, March 23-25, 2026, Wadham College, University of Oxford, Oxford, UK 397877, Agricultural Economics Society (AES).
    • Handle: RePEc:ags:aes026:397877
    DOI: 10.22004/ag.econ.397877
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