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Measurement of flood damage due to climate change by dynamic spatial computable general equilibrium model

Author

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  • Kazunori Nakajima
  • Hisayoshi Morisugi
  • Masafumi Morisugi
  • Naoki Sakamoto

Abstract

To explain economic impacts of flood damage due to climate change over time in Japan, this study develops a dynamic spatial computable general equilibrium model, and measures flood damage costs through some numerical experiments. It is inferred that the frequency and the intensity of flood are on the long-term increase. In the category of flood damage in Japan, there are serious flood damages to social capitals. These observations are described in statistical research on flood by Japanese government. In this study, these damages are defined as 'the direct damage', and are different from decrease in equivalent consumption due to the direct effect. Also, the proportion of the direct damage to decrease in equivalent consumption is defined as 'the dynamic multiplier of damage cost'. This study develops a spatial CGE model based on dynamic structure of the Ramsey model. Our model has 8 regions and 20 production sectors. The flood scenario is described as increase in capital depreciation rate due to flood from 2000 to 2050. In our simulations, 5 flood damage rates are used consisting of damage rates calculating by 4 climate models and uniform damage rate throughout Japan. To consider dynamic spillover effects of flood damage, this study proposes two indices as dynamic damage costs that are comparative static and transition dynamics. The former is the long-term damage caused as the result of shifts from a steady-state equilibrium to another by increasing in the frequency and the intensity of flood due to climate change. On the other hand, the latter is the difference between flood damage costs by a baseline scenario and by a flood scenario, on the transition path to a new steady-state equilibrium. As the transition path can be described, this study shows possible dynamic spillover effects of flood damage over time. The findings in this study are shown below. 1)In 2050, the total amount of flood damage cost is estimated to be from about US$0.4 billion to about US$5.6 billion. 2)The decrease in the rate of investment return by the long-term increase in flood damage causes decrease in savings and consumption, so that the dynamic multiplier of damage cost is estimated to be from 1.2 to 1.7 times.

Suggested Citation

  • Kazunori Nakajima & Hisayoshi Morisugi & Masafumi Morisugi & Naoki Sakamoto, 2014. "Measurement of flood damage due to climate change by dynamic spatial computable general equilibrium model," ERSA conference papers ersa14p673, European Regional Science Association.
    • Handle: RePEc:wiw:wiwrsa:ersa14p673
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    File URL: https://www-sre.wu.ac.at/ersa/ersaconfs/ersa14/e140826aFinal00673.pdf
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    References listed on IDEAS

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    1. de la Grandville,Olivier, 2009. "Economic Growth," Cambridge Books, Cambridge University Press, number 9780521725200, December.
    2. Alfonso Novales & Esther Fernández & Jesús Ruiz, 2022. "Numerical Solution Methods," Springer Texts in Business and Economics, in: Economic Growth, edition 3, chapter 5, pages 213-278, Springer.
    3. de la Grandville,Olivier, 2009. "Economic Growth," Cambridge Books, Cambridge University Press, number 9780521898010, December.
    4. Lau, Morten I. & Pahlke, Andreas & Rutherford, Thomas F., 2002. "Approximating infinite-horizon models in a complementarity format: A primer in dynamic general equilibrium analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 26(4), pages 577-609, April.
    5. Alfonso Novales & Esther Fernández & Jesús Ruiz, 2022. "Economic Growth," Springer Texts in Business and Economics, Springer, edition 3, number 978-3-662-63982-5, October.
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    Cited by:

    1. 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.

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    More about this item

    Keywords

    Computable General Equilibrium Models; Project Evaluation; Natural Disasters; Global Warming;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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