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Integrating equity and social vulnerability into cost-benefit analysis for disaster risk reduction / flood risk management

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Investing in infrastructure: Costs, benefits and effectiveness of disaster risk reduction measures.

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Jarl Kind (Deltares)

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Integrating equity and social vulnerability into cost-benefit analysis for disaster risk reduction / flood risk management

  1. 1. Integrating equity and social vulnerability into cost-benefit analysis for disaster risk reduction / flood risk management Jarl Kind (Deltares) OECD High Level Risk Form Agenda: Investing in infrastructure resilience – costs, benefits and effectiveness of disaster risk reduction measures Paris, September 18-19, 2019
  2. 2. Introduction What is the problem?  The poor are highly exposed to floods  The poor own little assets  Traditional approaches for flood risk assessments and CBAs focus on asset damages  “It is inefficient to protect the poor” This is incorrect from a social welfare / economic perspective:  Incomplete damage / loss concept  Equity and social vulnerability aspects are missing Equity and social vulnerability in CBA for DRR
  3. 3. To better protect the vulnerable and poor (1/2) 1. Adopt a minimum protection level • e.g. in the Netherlands FRM measures are taken to reduce the probability to become a flood victim to less than1/100,000 for everyone 2. Social protection • e.g. in the NL the government compensates flood damages (…) 3. Enrich the damage concept • e.g., include health related costs, lost labor income, travel cost etc. • especially relevant for the poor 4. Multiply flood damages per group with a Social Vulnerability Indicator • e.g., Cutter et. al. (2013) for USACE 5. Map costs and benefits for different groups (distributional analysis) • e.g. Equity and social vulnerability in CBA for DRR Total Poor Non-Poor Costs 10 3 7 Benefits 8 6 2 NPV -2 +3 -5
  4. 4. 6. Base decisions on social welfare economics (CBAs): • include equity weights to account for income differences, • include risk premiums to account for social vulnerability • founded in welfare economics • operationalized by utility theory Equity and social vulnerability in CBA for DRR To better protect the vulnerable and poor (2/2)
  5. 5. Utility function Equity and social vulnerability in CBA for DRR Diminishing marginal utility
  6. 6. Equity and social vulnerability in CBA for DRR Non-poor Poor Equity weights
  7. 7. Equity and social vulnerability in CBA for DRR Before a disaster Costs After a disaster Damages Risk aversion, social vulnerability
  8. 8. Risk premium and social vulnerability Equity and social vulnerability in CBA for DRR • Due to risk aversion, the welfare value of risk (WTP) is higher than P x D (Expected Damage) • WTP = Expected Damage + Risk Premium • The Risk Premium is a function of Social Flood Vulnerability • Social Flood Vulnerability ≈ Consumption Loss / Baseline Consumption
  9. 9. Risk premium and social vulnerability Equity and social vulnerability in CBA for DRR
  10. 10. • Equity weights and risk premiums are different for individuals or for groups • Data on the distribution of income, flood damage and the correlation between those are needed • Data on financial self protection, flood insurance and social protection is needed • Catastrophic risk needs to be valued Equity and social vulnerability in CBA for DRR Requirements for social welfare approach
  11. 11. Implications of the social welfare approach 1. Higher benefits for poor and vulnerable populations 2. More emphasis on distribution of risk and potentially high benefits of risk transfer 3. Data needs are high: proxies are needed 4. First experiments in case studies for HCMC and Colombo. Equity and social vulnerability in CBA for DRR
  12. 12. Kind, J., W. Botzen & J. Aerts, 2017, Accounting for risk aversion, income distribution and social welfare in cost-benefit analysis for flood risk management. WIREs Climate Change. Edited by Stephane Hallegatte (World Bank)
  13. 13. Kind, J., W. Botzen & J. Aerts, 2019, Social Vulnerability in Cost- Benefit Analysis for Flood Risk Management. Environment and Development Economics (in print)
  14. 14. Kind, J., 2019, Drowning by Numbers. Social Welfare, Cost- Benefit Analysis and Flood Risk Management. PhD thesis Available upon request jarl.kind@deltares.nl

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