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Flood Standard

Flood Standard. An optimal Safety Standard for Dike-ring areas. Carel Eijgenraam CPB Netherlands Bureau for Economic Policy Analysis. Map of Dike-Ring Areas. Main topics. What is the most efficient level of safety? or: What is the optimal height of a dike?

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Flood Standard

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  1. Flood Standard An optimal Safety Standard for Dike-ring areas Carel Eijgenraam CPB Netherlands Bureau for Economic Policy Analysis

  2. Map of Dike-Ring Areas

  3. Main topics • What is the most efficient level of safety? or: What is the optimal height of a dike? • How can the theoretical results be translated into legal safety standards?

  4. Starting points forsafety standards • Absolute safety against flooding is impossible. There will always be damage by flooding. • More safety and less risk on damage are ALWAYS possible, but at rising costs. • Making choices is possible and necessary, e.g. on the height of dikes. • Economic question with a rational solution, but in the end a political decision has to be taken (imponderables, risk aversion)

  5. Choosing on safety Central question: • At which size of investment in prevention, e.g. in heightening dikes, are the social costs of an additional investment bigger than the social benefits of the extra decrease of the expected loss? • At this point: stop investing.

  6. Cost Minimisationfor one-time investment Cost (euro) C = I + R A I = investment costs R = future expected loss = chance × loss ˆ X Heightening dike (m)

  7. Cost Minimisation dynamic Changes in the future: • deterioration water system e.g. climate change, subsidence of land => probability of flooding rises • growth of population and wealth => loss by flooding increases In combination: expected loss increases (= probability x loss by flooding) => Changes lead to more than one decision on investment

  8. Driving Forces of the Investment Strategy Two influences on decision: • discount rate (δ > 0): • postpone investment expenses • fixed investment costs: • do as much as possible at one time Consequence: Heightening in jumps => safety level is not constant, but fluctuating Two questions to answer: • when? • how much?

  9. Optimal Strategy Dike Ring:Interval for expected loss

  10. Expected damage per year (euros) when ? S– high how much? = how long? S+ time low Rising costs ==>Rising optimal loss interval

  11. Probabilities of Flooding for dike ring 43 Betuwe

  12. Legal Safety Standards • Discussion about new legal safety standards for dike-ring areas My personal policy advise: Use the middle of the interval as test when action becomes desirable • understandable standard • only depending on average costs • enough time left for preparation and construction of big actions

  13. Middle Probability of Flooding mean S = δ × standard size × average optimal costs p.u. (t) mid mean P = S / V (t) t t P = Probability of flooding p.y. V = Wealth (damage by flooding) S = Expected loss p.y. (P x V) Standard size = action that diminishes P with factor e (= 2,72...)

  14. Probability of Flooding when Investing continuously probability time

  15. Middle Probability of Floodingas standard test for action yearly cost of ‘standard’ action Wealth mid P = t t lenght of dike number of inhabitantst mid P ≈“constant” x t

  16. Middle optimal safety (2,5%) andinhabitants per km dike (log)

  17. Two common ideas in the discussion about standards • More differentiation seems efficient: more people/value => more safety (both between areas and in time) • compare 50 with 51 and 49 • Base new standards on CBA • Both ideas on efficiency do raise questions on equality

  18. Two consequences of using Cost Benefit-Analysis • Costs matter as much as benefits. • compare dike-ring areas 45 and 43 • Outcome is roughly in line with distributing the same amount of money to every inhabitant of a dike ring, irrespective the situation of that dike ring. ==> CBA leads to equality in input, not to equality in output.

  19. Other Policy Considerations • Guarantee minimum level for personal safety • Standard for societal risk, if more than proportional (CBA)? • Takes the highest safety standard of the three (CBA, PS, SR)

  20. Important Messages onSafety of Dike-ring Areas • Not the probability of flooding, but the expected loss is the pivotal variable in making decisions about the safety of dike-ring areas. • Derive the legal safety standard for the probability of flooding from the expected loss. • My policy advice: Use the Middle Probability of Flooding as basis for the standard for testing the safety of the whole dike ring. • Add a text in the law that makes robust designs and actions possible.

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