The Implications of Skewed Risk Perception for a Dutch Coastal Land Market: Insights from an Agent-Based Computational Economics Model

Abstract

Dutch coastal land markets are characterized by high amenity values but are threatened by potential coastal hazards, leading to high potential damage costs from flooding. Yet, Dutch residents generally perceive low or no flood risk. Using an agent-based land market model and Dutch survey data on risk perceptions and location preferences, this paper explores the patterns of land development and land rents produced by buyers with low, highly skewed risk perceptions. We find that, compared to representative agent and uniform risk perception models, the skewed risk perception distribution produces substantially more, high-valued development in risky coastal zones, potentially creating economically significant risks triggered by the current Dutch flood protection policy.