Spatial Variation in Flood Risk Perception: A Spatial Econometric Approach

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”).