Changing climate, changing behavior: Adaptive economic behavior and housing markets responses to flood risks

Spatial econometrics and analytical spatial economic modeling advanced significantly in the recent years. Yet, methodologically they are designed to tackle marginal changes in the underlying dynamics of spatial urban systems. In the world with climate change, however, abrupt sudden nonmarginal changes in economic system are expected. This is especially relevant for urban development in coastal and delta areas where the probabilities of natural 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 transitions 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.