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Individual preferences for reducing flood risk to near zero through elevation

Wouter Botzen, J. Aerts () and Jeroen van den Bergh

Mitigation and Adaptation Strategies for Global Change, 2013, vol. 18, issue 2, 229-244

Abstract: Climate change is expected to increase the frequency and intensity of natural disasters. Adaptation investments are required in order to limit the projected increase in natural disaster risks. Adaptation measures can reduce risk partially or completely eliminate risk. The literature on behavioural economics suggests that individuals rarely undertake measures that limit risk partially, while they may place a considerable value on measures that reduce risk to zero. This is studied for a case of adaptation to climate change and its effects on flood risk in the Netherlands. In particular, we examine whether households are willing to invest in elevating newly built structures when this is framed as eliminating flood risk. The results indicate that a majority of homeowners (52%) is willing to make a substantial investment of €10,000 to elevate a new house to a level that is safe to flooding. Differences between willingness to pay (WTP) for flood insurance and WTP for risk elimination through elevation indicate that individuals place a considerable value on the latter adaptation option. This study estimates that the “safety premium” which individuals place on risk elimination is approximately between €35 and €45 per month. The existence of a safety premium has important implications for the design of climate change adaptation policies. The decision to invest in elevating homes is significantly correlated with the expected negative effects of climate change, perceptions of flood risks, individual risk attitudes, and living close to a main river. Copyright The Author(s) 2013

Keywords: Behavioural economics; Damage mitigation; Flood risk management; Flooding; Risk and uncertainty; Sea level rise; The Netherlands (search for similar items in EconPapers)
Date: 2013
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Handle: RePEc:spr:masfgc:v:18:y:2013:i:2:p:229-244