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A Cost-Benefit Analysis of the New Orleans Flood Protection System

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  • Stéphane Hallegatte

    (CIRED - centre international de recherche sur l'environnement et le développement - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)

Abstract

In the early stages of rebuilding New Orleans, a decision has to be made on the level of flood protection the city should implement. Such decisions are usually based on cost-benefit analyses. But in such an analysis, the results are contingent on a number of underlying assumptions and varying these assumptions can lead to different recommendations. Indeed, though a standard first-order analysis rules out category 5 hurricane protection, taking into account climate change and other human-related disruptions of environment, second-order impacts of large-scale disasters, possible changes in the discount rate, risk aversion and damage heterogeneity may make such a hurricane protection a rational investment, even if countervailing risks and moral hazard issues are included in the analysis. These results stress the high sensitivity of the CBA recommendation to several uncertain assumptions, highlight the importance of second-order costs and damage heterogeneity in welfare losses, and show how climate change creates an additional layer of uncertainty in infrastructure design that increases the probability of either under-adaptation (and increased risk) or over-adaptation (and sunk costs).

Suggested Citation

  • Stéphane Hallegatte, 2006. "A Cost-Benefit Analysis of the New Orleans Flood Protection System," Post-Print hal-00164628, HAL.
  • Handle: RePEc:hal:journl:hal-00164628
    Note: View the original document on HAL open archive server: https://hal.science/hal-00164628
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    File URL: https://hal.science/hal-00164628/document
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    Citations

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    Cited by:

    1. Hallegatte, Stephane & Shah, Ankur & Lempert, Robert & Brown, Casey & Gill, Stuart, 2012. "Investment decision making under deep uncertainty -- application to climate change," Policy Research Working Paper Series 6193, The World Bank.
    2. Koen Koning & Tatiana Filatova & Okmyung Bin, 2018. "Improved Methods for Predicting Property Prices in Hazard Prone Dynamic Markets," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 69(2), pages 247-263, February.
    3. Alistair Hunt & Paul Watkiss, 2011. "Climate change impacts and adaptation in cities: a review of the literature," Climatic Change, Springer, vol. 104(1), pages 13-49, January.
    4. Leif Inge K. Sørskår & Eirik B. Abrahamsen, 2017. "On how to manage uncertainty when considering regulatory HSE interventions," EURO Journal on Decision Processes, Springer;EURO - The Association of European Operational Research Societies, vol. 5(1), pages 97-116, November.
    5. E. Jakku & P. J. Thorburn & N. A. Marshall & A-M. Dowd & S. M. Howden & E. Mendham & K. Moon & C. Brandon, 2016. "Learning the hard way: a case study of an attempt at agricultural transformation in response to climate change," Climatic Change, Springer, vol. 137(3), pages 557-574, August.
    6. Shyam KC, 2013. "Cost Benefit Studies on Disaster Risk Reduction in Developing Countries," World Bank Publications - Reports 16111, The World Bank Group.
    7. Ausloos, Marcel & Pe¸kalski, Andrzej, 2007. "Model of wealth and goods dynamics in a closed market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 373(C), pages 560-568.
    8. Stéphane Hallegatte & Jan Corfee-Morlot, 2011. "Understanding climate change impacts, vulnerability and adaptation at city scale: an introduction," Climatic Change, Springer, vol. 104(1), pages 1-12, January.
    9. Abrahamsen, Eirik Bjorheim & Abrahamsen, Håkon Bjorheim & Milazzo, Maria Francesca & Selvik, Jon Tømmerås, 2018. "Using the ALARP principle for safety management in the energy production sector of chemical industry," Reliability Engineering and System Safety, Elsevier, vol. 169(C), pages 160-165.

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