Modeling the interaction between flooding events and economic growth

Johanna Grames, Alexia Prskawetz, Dieter Grass, Alberto Viglione, Günter Blöschl

Publication: Scientific journalJournal articlepeer-review

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Abstract

Recently socio-hydrology models have been proposed to analyze the interplay of community risk-coping
culture, flooding damage and economic growth. These models descriptively explain the feedbacks between
socio-economic development and natural disasters such as floods. Complementary to these descriptive
models, we develop a dynamic optimization model, where the inter-temporal decision of an economic agent
interacts with the hydrological system. We assume a standard macro-economic growth model where agents
derive utility from consumption and output depends on physical capital that can be accumulated through
investment. To this framework we add the occurrence of flooding events which will destroy part of the
capital. We identify two specific periodic long term solutions and denote them rich and poor economies.
Whereas rich economies can afford to invest in flood defense and therefore avoid flood damage and develop
high living standards, poor economies prefer consumption instead of investing in flood defense capital and
end up facing flood damages every time the water level rises like e.g. the Mekong delta. Nevertheless, they
manage to sustain at least a low level of physical capital. We identify optimal investment strategies and
compare simulations with more frequent, more intense and stochastic high water level events.
Original languageEnglish
Pages (from-to)193-209
JournalEcological Economics
Volume129
DOIs
Publication statusPublished - 2016
Externally publishedYes

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