Investing in infrastructure: Costs, benefits and effectiveness of disaster risk reduction measures. Presentation made by: Jarl Kind (Deltares)

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. 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. 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. 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. Utility function
Equity and social vulnerability in CBA for DRR
Diminishing marginal utility

6. Equity and social vulnerability in CBA for DRR
Non-poor Poor
Equity weights

7. Equity and social vulnerability in CBA for DRR
Before a disaster
Costs
After a disaster
Damages
Risk aversion, social vulnerability

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. Risk premium and social vulnerability
Equity and social vulnerability in CBA for DRR

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

12. 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

13. 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)

14. Kind, J., W. Botzen & J.
Aerts, 2019, Social
Vulnerability in Cost-
Benefit Analysis for
Flood Risk
Management.
Environment and
Development
Economics (in print)

15. Kind, J., 2019,
Drowning by Numbers.
Social Welfare, Cost-
Benefit Analysis and
Flood Risk
Management.
PhD thesis
Available upon request
jarl.kind@deltares.nl