Estimating Household Preferences for Coastal Flood Risk Mitigation Policies under Ambiguity

Abstract

Risk mitigation policies (like dike rising) are essential to address increasing coastal flood risks due to global warming. Furthermore, the optimal level of risk mitigation policy should be determined by public preferences for risk reduction. However, it is difficult to reveal public preferences for coastal flood risk reduction because projections of coastal flood risks inevitably involve uncertainty. This study aims to estimate household preference for coastal flood reduction under ambiguity and multiple projections of coastal flood risks. By coupling storm surge inundation simulations and stated preference experiments with decision models, we estimate the expected loss reduction, risk premium, and ambiguity premium for coastal flood risk mitigation policies. The study shows that ignoring the ambiguity premium causes significant undervaluation of coastal flood risk mitigation.