Abstract
The main objective of this study is to simulate household choice behavior under varying climate change scenarios using choice experiments. Economic welfare measures are derived for society’s willingness to pay (WTP) to reduce climate change induced flood risks through private insurance and willingness to accept compensation (WTAC) for controlled flooding under varying future risk exposure levels. Material flood damage and loss of life are covered in the insurance policy experiment, while the WTAC experiment also captures the economic value of immaterial flood damage such as feelings of discomfort, fear and social disruption. The results show that WTP and WTAC are substantial, suggesting a more prominent role of external social damage costs in cost-benefit analysis of climate change and flood mitigation policies.
Highlights
Climate change poses new challenges to flood risk mitigation and disaster management in countries situated below sea level like the Netherlands
The study presented in this paper focused on public perception and valuation of climate change flood risks, alternative adaptation and mitigation strategies to cope with the expected increase of these risks, and their effect on human well-being in a highly developed flood prone country
The immaterial well-being effects of climate change risk mitigation addressed in this study are missing in most economic reviews, which focus primarily on the material implications of climate change adaptation and mitigation like house and property flood damage
Summary
The choice experiment that informs this study is part of the family of stated preference methods (e.g. Hanley et al 1998; Birol and Koundouri 2008; Carson and Louviere 2011). Theory tells us that WTP for a reduction in risk exposure depends on (i) the realised level of risk, which is determined by exogenous risk and self-protection activities, (ii) individual characteristics such as disposable income to protect oneself against risk, and (iii) an individual’s disutility from risk exposure or risk aversion (Shogren and Crocker 1991; Bateman et al 2005) These factors were controlled for as much as possible in the choice experiment and estimated choice models presented here through the inclusion of a wide variety of related questions in the survey about individual respondents’ risk awareness, knowledge, perception, attitudes and protection measures
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