Although many megacities in developing countries experience floods that affect a large number of people, relatively few empirical studies have evaluated the costs involved. This paper estimates such costs by conducting a hedonic price analysis of the impacts of floods on the housing market in Jakarta. 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 utilized to estimate the correlation between the level of the 2007 floods and monthly housing rental prices in Jakarta, Indonesia. This paper concludes that in developing countries' megacities the total cost of floods is not as considerable as the total estimated cost of making the city of Jakarta floodfree.
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