Chapter 5 Conclusion and Policy Recommendations 5.1 Conclusion This study developed urban economics models, namely, the partial equilibrium model and the general equilibrium model, to analyze illegal settlements in Palangkaraya city in the Central Kalimantan Province, Indonesia. The partial equi- librium model is aimed at developing a preliminary theoretical analysis. The models are developed by employing the bid rent approach. Because the city is in a tropical region surrounded by river basins and has suffered massive deforestation of its surrounding forest, frequent floods and their corresponding damage to household assets in the city are inevitable. The models introduced the EFDR on household assets. Because floods occur stochastically and given the unreliability of the data records on historical flood occurrences, water inundation is estimated by employing the annual expected depth of flood water, as introduced by Miyata and Abe (1991). In the models, this method was modified slightly by incorporating a damage level for household assets that corresponds to water volume. Hence, by applying the modified method, such EFDR to household assets can be estimated. Furthermore, the EFDR value can be employed to constitute land quality in the city. If the EFDR value is 0, then the land is safe from water inundation. If the EFDR value is greater than 0, then the land faces water inundation. This method is regarded as a new attempt to analyze illegal settlements in flood-prone areas from an urban economics point of view, hence extending the previous studies on urban economics theory. In addition, land quality is considered in the utility function. Each household is assumed to feel unsecured if it is in a flood-prone area because of the expectation of frequent floods. Therefore, the utility function is assumed to be discounted in a flood-prone area. Moreover, households maximize their ability to pay for land through an appropriate choice of goods and land—in this case, including its quality. © Springer Nature Singapore Pte Ltd. 2018 Y. Miyata et al., Environmental and Natural Disaster Resilience of Indonesia, New Frontiers in Regional Science: Asian Perspectives 23, https://doi.org/10.1007/978-981-10-8210-8_5 93