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From optimal to practical safety standards for dike-ring areas

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  • Carel Eijgenraam

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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. 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.

Suggested Citation

  • Carel Eijgenraam, 2009. "From optimal to practical safety standards for dike-ring areas," CPB Memorandum 213, CPB Netherlands Bureau for Economic Policy Analysis.
  • Handle: RePEc:cpb:memodm:213
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    1. Arie ten Cate, 2007. "Modelling the reporting discrepancies in bilateral data," CPB Memorandum 179, CPB Netherlands Bureau for Economic Policy Analysis.
    2. Nico van Leeuwen & Arjan Lejour, 2006. "Bilateral Services Trade Data and the GTAP database," CPB Memorandum 160, CPB Netherlands Bureau for Economic Policy Analysis.
    3. Gehlhar, Mark, 1996. "Reconciling Bilateral Trade Data for Use in GTAP," GTAP Technical Papers 313, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
    4. Richard Stone & D. G. Champernowne & J. E. Meade, 1942. "The Precision of National Income Estimates," Review of Economic Studies, Oxford University Press, vol. 9(2), pages 111-125.
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