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ISDF4 2008-05-08 130 Safety Standard for Flooding Flood Standard Carel Eijgenraam CPB Netherlands Bureau for Economic Policy Analysis An optimal Safety Standard for Dike-ring areas

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ISDF4 2008-05-08 130 Safety Standard for Flooding Map of Dike-Ring Areas

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ISDF4 2008-05-08 130 Safety Standard for Flooding Main topics 1.What is the most efficient level of safety? or: What is the optimal height of a dike? 2.How can the theoretical results be translated into legal safety standards?

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ISDF4 2008-05-08 130 Safety Standard for Flooding Absolute safety against flooding is impossible. There will always be damage by flooding. More safety and less risk on damage are ALWAYS possible, but at rising costs. Making choices is possible and necessary, e.g. on the height of dikes. Economic question with a rational solution,but in the end a political decision has to be taken (imponderables, risk aversion) Starting points for safety standards

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ISDF4 2008-05-08 130 Safety Standard for Flooding Central question: At which size of investment in prevention, e.g. in heightening dikes, are the social costs of an additional investment bigger than the social benefits of the extra decrease of the expected loss? At this point: stop investing. Choosing on safety

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ISDF4 2008-05-08 130 Safety Standard for Flooding Cost Minimisation for one-time investment A R = future expected loss = chance × loss C = I + R I = investment costs X ˆ Cost (euro) Heightening dike (m)

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ISDF4 2008-05-08 130 Safety Standard for Flooding Cost Minimisation dynamic Changes in the future: deterioration water system e.g. climate change, subsidence of land => probability of flooding rises growth of population and wealth => loss by flooding increases In combination: expected loss increases (= probability x loss by flooding) => Changes lead to more than one decision on investment

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ISDF4 2008-05-08 130 Safety Standard for Flooding Driving Forces of the Investment Strategy Two influences on decision: discount rate (δ > 0): –postpone investment expenses fixed investment costs: –do as much as possible at one time Consequence: Heightening in jumps => safety level is not constant, but fluctuating Two questions to answer: when? how much?

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ISDF4 2008-05-08 130 Safety Standard for Flooding Optimal Strategy Dike Ring: Interval for expected loss

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ISDF4 2008-05-08 130 Safety Standard for Flooding Rising costs ==> Rising optimal loss interval time S–S– S+S+ Expected damage per year (euros) when ? how much? = how long? high low

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ISDF4 2008-05-08 130 Safety Standard for Flooding Probabilities of Flooding for dike ring 43 Betuwe

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ISDF4 2008-05-08 130 Safety Standard for Flooding Legal Safety Standards Discussion about new legal safety standards for dike-ring areas My personal policy advise: Use the middle of the interval as test when action becomes desirable understandable standard only depending on average costs enough time left for preparation and construction of big actions

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ISDF4 2008-05-08 130 Safety Standard for Flooding Middle Probability of Flooding S = δ × standard size × average optimal costs p.u. mean (t) P = mid t S / V mean (t) t P= Probability of flooding p.y. V= Wealth (damage by flooding) S= Expected loss p.y. (P x V) Standard size = action that diminishes P with factor e (= 2,72...)

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ISDF4 2008-05-08 130 Safety Standard for Flooding Probability of Flooding when Investing continuously probability time

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ISDF4 2008-05-08 130 Safety Standard for Flooding Middle Probability of Flooding as standard test for action P = mid t yearly cost of ‘standard’ action Wealth P≈ “constant” x mid t lenght of dike number of inhabitants t t

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ISDF4 2008-05-08 130 Safety Standard for Flooding Middle optimal safety (2,5%) and inhabitants per km dike (log)

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ISDF4 2008-05-08 130 Safety Standard for Flooding Two common ideas in the discussion about standards More differentiation seems efficient: more people/value => more safety (both between areas and in time) –compare 50 with 51 and 49 Base new standards on CBA Both ideas on efficiency do raise questions on equality

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ISDF4 2008-05-08 130 Safety Standard for Flooding Two consequences of using Cost Benefit-Analysis Costs matter as much as benefits. –compare dike-ring areas 45 and 43 Outcome is roughly in line with distributing the same amount of money to every inhabitant of a dike ring, irrespective the situation of that dike ring. ==> CBA leads to equality in input, not to equality in output.

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ISDF4 2008-05-08 130 Safety Standard for Flooding Other Policy Considerations Guarantee minimum level for personal safety Standard for societal risk, if more than proportional (CBA)? Takes the highest safety standard of the three (CBA, PS, SR)

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ISDF4 2008-05-08 130 Safety Standard for Flooding Important Messages on Safety of Dike-ring Areas 1.Not the probability of flooding, but the expected loss is the pivotal variable in making decisions about the safety of dike-ring areas. 2.Derive the legal safety standard for the probability of flooding from the expected loss. 3.My policy advice: Use the Middle Probability of Flooding as basis for the standard for testing the safety of the whole dike ring. 4.Add a text in the law that makes robust designs and actions possible.

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