The cost of floods in developing countries’ megacities: a hedonic price analysis of the Jakarta housing market, Indonesia

  • José Armando Cobián ÁlvarezEmail author
  • Budy P. Resosudarmo
Research Article


Although many megacities in developing countries experience floods annually that affect a large number of people, relatively few empirical studies have evaluated the associated costs. This paper estimates such costs by conducting a hedonic price analysis—providing evidence regarding the impacts of floods on the housing market. A robust regression technique on a simple linear transformation model, and a maximum likelihood estimation technique on the spatial lag version of the simple linear transformation model, are utilised to estimate the correlation between the level of the 2007 floods and monthly housing rental prices in Jakarta, Indonesia. This paper sheds light on the fact that in developing countries’ megacities, the total cost of floods among households is significantly lower compared to the total amount of funding needed to permanently eliminate floods in these megacities. Hence, a constant exposure of the urban areas in developing countries to flood damage will most likely keep happening.


Environmental economics Hedonic price analysis Spatial analysis Flood 

JEL classification

Q51 Q54 R32 O21 



The authors would like to thank M. Agung Widodo for managing the IFLS data set for this paper. Some financial supports were received from the Australia Indonesia Centre (AIC). All mistakes are the authors’ responsibility.


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Copyright information

© Society for Environmental Economics and Policy Studies and Springer Japan KK, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Arndt‐Corden Department of Economics, Crawford School of Public PolicyAustralian National UniversityActonAustralia

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