Land markets from the bottom up : micro-macro links in economics and implications for coastal risk management

Coastal flood risk is defined as a product of probability of event and its effect, measured in terms of damage. The focus of this paper is on how to decrease risk by decreasing potential damage. We review socio-economic literature to show that total flood damage depends on individual location choices in the housing market and on individual flood risk awareness. Low flood risk awareness leads to inefficient spatial developments and increased flood risk. We show that personal experience, risk communication, financial instruments like insurance from flooding and technical instruments like building on high elevations, are factors that increase individual risk awareness. Evidence that these factors indeed affect housing prices and land use patterns is provided. We discuss proactive instruments that can be used in coastal zone management in the Netherlands to increase individual risk awareness. We argue that policy-makers may create incentives giving individuals a possibility to make location choices that lead to less total flood risk in the coastal zone area.