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Optimal safety standards for dike-ring areas

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  • Carel Eijgenraam

Abstract

After 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. After 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 formula with a fixed exceedance probability after each investment (Econometrica, 1956) is still in use today in cost benefit analysis of flood-protection measures. However, his solution is both incomplete and wrong. In the context of economic growth, not the exceedance probability 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 paper gives the formulas for the optimal boundaries for a more complicated problem which is more in line with engineering experience. One condition is that the rate of return at the moment of investment (FYRR) has to be zero (or positive). Then the net present value (NPV) of a safety investment will be very positive or even infinite. Therefore, in case of economic growth the well known NPV criterion in cost benefit analysis of a single project is not a sufficient criterion for investing. An application of the model with the original figures for the dike ring Central Holland has been added as well as a recent application for dike ring areas along the river Rhine.

Suggested Citation

  • Carel Eijgenraam, 2006. "Optimal safety standards for dike-ring areas," CPB Discussion Paper 62, CPB Netherlands Bureau for Economic Policy Analysis.
    • Handle: RePEc:cpb:discus:62
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    References listed on IDEAS

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    1. Ruud de Mooij & Paul Tang, 2003. "Four futures of Europe," CPB Special Publication 49, CPB Netherlands Bureau for Economic Policy Analysis.
    2. Ruud de Mooij & Paul Tang, 2003. "Four futures of Europe," CPB Special Publication 49.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
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    Cited by:

    1. Dupuits, E.J.C. & Schweckendiek, T. & Kok, M., 2017. "Economic optimization of coastal flood defense systems," Reliability Engineering and System Safety, Elsevier, vol. 159(C), pages 143-152.
    2. Myung-Jin Kim & Robert J. Nicholls & John M. Preston & Gustavo A. Almeida, 2022. "Evaluation of flexibility in adaptation projects for climate change," Climatic Change, Springer, vol. 171(1), pages 1-17, March.
    3. Peter Zwaneveld & Gerard Verweij, 2018. "Economic Decision Problems in Multi-Level Flood Prevention: a new graph-based approach used for real world applications," CPB Discussion Paper 380, CPB Netherlands Bureau for Economic Policy Analysis.
    4. Dominik Paprotny & Paweł Terefenko, 2017. "New estimates of potential impacts of sea level rise and coastal floods in Poland," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 85(2), pages 1249-1277, January.
    5. Peter Zwaneveld & Gerard Verweij, 2014. "Safe Dike Heights at Minimal Costs: An Integer Programming Approach," CPB Discussion Paper 277.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    6. Grames, Johanna & Prskawetz, Alexia & Grass, Dieter & Viglione, Alberto & Blöschl, Günter, 2016. "Modeling the interaction between flooding events and economic growth," Ecological Economics, Elsevier, vol. 129(C), pages 193-209.
    7. Ruud Brekelmans & Dick den Hertog & Kees Roos & Carel Eijgenraam, 2012. "Safe Dike Heights at Minimal Costs: The Nonhomogeneous Case," Operations Research, INFORMS, vol. 60(6), pages 1342-1355, December.
    8. Arjen Hoekstra & Jean-Luc Kok, 2008. "Adapting to climate change: a comparison of two strategies for dike heightening," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 47(2), pages 217-228, November.
    9. Chahim, M. & Brekelmans, R.C.M. & den Hertog, D. & Kort, P.M., 2012. "An Impulse Control Approach to Dike Height Optimization (Revised version of CentER DP 2011-097)," Other publications TiSEM 3c3300f1-03c8-45b2-9fb6-4, Tilburg University, School of Economics and Management.
    10. Peter Zwaneveld & Gerard Verweij, 2018. "Economic Decision Problems in Multi-Level Flood Prevention: a new graph-based approach used for real world applications," CPB Discussion Paper 380.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    11. Frans Klijn & Marjolein Mens & Nathalie Asselman, 2015. "Flood risk management for an uncertain future: economic efficiency and system robustness perspectives compared for the Meuse River (Netherlands)," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 20(6), pages 1011-1026, August.
    12. Zwaneveld, P. & Verweij, G. & van Hoesel, S., 2018. "Safe dike heights at minimal costs: An integer programming approach," European Journal of Operational Research, Elsevier, vol. 270(1), pages 294-301.
    13. Peter Zwaneveld & Gerard Verweij, 2014. "Safe Dike Heights at Minimal Costs: An Integer Programming Approach," CPB Discussion Paper 277, CPB Netherlands Bureau for Economic Policy Analysis.
    14. Jeroen Neuvel & Adri van den Brink, 2009. "Flood risk management in Dutch local spatial planning practices," Journal of Environmental Planning and Management, Taylor & Francis Journals, vol. 52(7), pages 865-880.
    15. Carel Eijgenraam & Ruud Brekelmans & Dick den Hertog & Kees Roos, 2017. "Optimal Strategies for Flood Prevention," Management Science, INFORMS, vol. 63(5), pages 1644-1656, May.
    16. Martin Vezér & Alexander Bakker & Klaus Keller & Nancy Tuana, 2018. "Epistemic and ethical trade-offs in decision analytical modelling," Climatic Change, Springer, vol. 147(1), pages 1-10, March.
    17. Bos, Frits & Zwaneveld, Peter, 2017. "Cost-benefit analysis for flood risk management and water governance in the Netherlands; an overview of one century," MPRA Paper 80933, University Library of Munich, Germany.
    18. Eveline van Leeuwen & Peter Nijkamp & Piet Rietveld, 2009. "Climate Change: From Global Concern To Regional Challenge," Romanian Journal of Regional Science, Romanian Regional Science Association, vol. 3(2), pages 18-38, DECEMBER.
    19. Jonkman, S.N. & Bockarjova, M. & Kok, M. & Bernardini, P., 2008. "Integrated hydrodynamic and economic modelling of flood damage in the Netherlands," Ecological Economics, Elsevier, vol. 66(1), pages 77-90, May.
    20. Carel Eijgenraam, 2008. "From optimal to practical safety standards for dike-ring areas," CPB Memorandum 213.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    21. Leeuwen, E.S. van & Nijkamp, P. & Rietveld, P., 2011. "Climate change: From global concern to regional challenge," Serie Research Memoranda 0018, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.

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    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate

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