What is hedonic pricing? How can the adverse effect of flood on house or land values be estimated by hedonic pricing?

Hedonic pricing is a method to establish the monetary value of such items as noise, flood risk, air quality etc based on the assumption that property and other land value which is exposed to the risk of frequent flooding commands less value than an exactly similar house located in different and better surroundings.

In order to estimate how the value of a house is affected by the risk of flooding, it would be necessary to collect information on sale prices of houses with different degrees of risk for for flooding, including zero flooding, along with other characteristics of similar houses (such as number of rooms, type of structure, availability of other facilities and quality etc.).

Thereafter, a statistical or econometric analysis can be conducted to establish a relationship between extent of flooding and decrease in sale price assuming everything else stays the same. In this manner, the adverse effect of flood on house or land values can be estimated.