Thinking about Big Floods in a Small Country - Dutch Modelling Exercises

In this contribution we discuss new developments in Dutch thinking about the increasing risk of big floods. A first issue concerns the choice of methodology. Today several ones exist to assess the consequences of big natural catastrophes. These methodologies differ significantly in background philosophy, objective or scope. In the U.S., for example, several market-based approaches have been presented recently, focusing on short run disequilibria. Certain preferences seem to exist, depending on country and type of catastrophe we wish to study. Nonetheless, by and large the debate is still open, depending on what the country or region views as its major problem. It is questionable whether market-based approaches are fruitful for a small country with a large state influence, such as the Netherlands. Probably it is better to start from the notion of specific types of network disruptions in a highly developed and densely populated country. In this paper, we focus on the interdependencies between production and consumption activities. This leads to an investigation based on Input-Output (I-O) methodologies. A big flood then causes a series of disruptions in the existing production and consumption networks. Our paper addresses the point that I-O as it stands is not very appropriate. The basic problem is that I-O models stress interaction and equilibrium, while here we have to deal with disruption and disequilibrium. In our contribution, we model the consequences of a disaster where a part of the existing economic networks fails temporarily or forever. Several situations can be distinguished: after the disaster, many suppliers will have lost their customers. Vice versa, it also may be impossible to satisfy existing demand because the supplying firms cannot deliver any more. This means that the economy suddenly has to decide on the way its now restricted resources should be distributed. In fact, a major decision is asked for. Economic policy needs to steer the distribution of the available goods in intelligent ways between various categories of buyers and suppliers. In a pure market economy decisions made most likely will be different from those made in a heavily regulated country like the Netherlands. Our research is based on the basic hypothesis underlying I-O models, i.e. the need to distinguish between two major categories of destination, ‘final consumption’ (such as households, investment demand, government demands, exports), and ‘intermediate demand’ (basically all inputs into the industrial core of the country). Outcomes will be different according to the choices being made. One reason is the presence of multiplier effects, which reflect current interactions. A choice in favour of final demand will alleviate problems of the affected groups, but at the same time will increase inter-industry imbalances, and imply a heavy role for supporting import. The choice is not straightforward, and involves complex interrelations and interactions. In this paper we use regional I-O tables in combination with GIS-based techniques. In the empirical part of the paper we discuss the consequences of a large dike break in the central part of the country.