From optimal to practical safety standards for dike-ring areas
AbstractAfter the flood disaster in 1953 in the southwestern part of the Netherlands, Van Dantzig tried to solve the economic decision problem concerning the optimal height of dikes. His solution has a fixed probability of flooding after each investment (Econometrica, 1956). However, when there is economic growth, not the probability of flooding but the expected yearly loss by flooding is the key variable in the real optimal safety strategy. Under some conditions, it is optimal to keep this expected loss within a constant interval. Therefore, when the potential damage increases by economic growth, the flooding probability has to decline in the course of time in order to keep the expected loss between the fixed boundaries. The purpose of the paper is to show the implications of the optimal solution in case there are differences between costs and benefits among dike-ring areas. Further, the paper focuses on the translation of the theoretical results into new legal standards that can work well in practice. Cost benefit analysis, optimal height of dikes, optimal safety standards.
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Bibliographic InfoPaper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Memorandum with number 213.
Date of creation: Jan 2008
Date of revision:
Find related papers by JEL classification:
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
- H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-02-22 (All new papers)
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