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Changing Climate, Changing Behavior: Adaptive
Economic Behavior and Housing Markets Responses
to Flood Risks
Tatiana Filatova
1,2
and Okmyung Bin
3
1
Centre for Studies in Technology and Sustainable Development,
University of Twente, P.O. Box 217, 7500 AE Enschede, NL
t.filatova@utwente.nl
2
Deltares, Postbus 85467, 3508 AL Utrecht, NL
3
Department of Economics, Thomas Harriot College of Arts and Sciences,
East Carolina University, Brewster A-435, Tenth Street, Greenville,
North Carolina 27858-4353
bino@ecu.edu
Abstract.
Spatial econometrics and analytical spatial economic modeling ad-
vanced significantly in the recent years. Yet, methodologically they are de-
signed to tackle marginal changes in the underlying dynamics of spatial urban
systems. In the world with climate change, however, abrupt sudden non-
marginal changes in economic system are expected. This is especially relevant
for urban development in coastal and delta areas where the probabilities of nat-
ural hazards such as catastrophic floods and hurricanes increase dramatically
with climate change. New information about risks and micro-level interactions
among economic agents alters individual location choices and impacts urban
land markets dynamics potentially leading to the emergence of critical transi-
tions from the bottom-up. We address this gap by incorporating adaptive
expectations about land market dynamics into a spatial agent-based model of a
coastal city. We build upon the previous research on agent-based modeling of
urban land markets, and make a step forward towards empirical modeling by
using actual hedonic study and spatial data for a coastal town in North Carolina,
USA. Decentralized urban market with adaptive expectations about property
prices in the areas with increasing hazard probabilities, may experience abrupt
changes that shift the trends of spatial development and pricing.
1
Introduction
A major part of world population lives in coastal and delta areas. These areas are
highly threatened by the adverse consequences of climate change as probabilities of
severe disasters like Hurricanes Katrina and Sandy or European and Australian flood-
ing of the last years increase Climate change might lead to a forced displacement of
up to 187 million people in coastal zones (Nicholls et al. 2011). Yet, these risk are
spatially correlated with rich amenities of those locations (Bin et al. 2008). Coastal
and delta areas were historically developed due to their proximity to marine and river
