Risk-trading in flood management: An economic model.

Area of Science:

• Environmental Management
• Water Resource Management
• Environmental Economics

Background:

• Flood management traditionally relies on engineering solutions, neglecting adaptation and the need to internalize cross-regional flood risk externalities.
• Integrated river basin management is recommended but faces implementation challenges.
• Existing approaches struggle to address the complexities of flood adaptation and risk externalities.

Purpose of the Study:

• To explore a market-based approach, specifically a flood risk trading program, to encourage integrated river basin management and internalization of externalities.
• To demonstrate how flood risk trading can incentivize mitigation measures that enhance infiltration and storage capacity.
• To present a theoretical model for the economic conditions required for implementing flood risk trading.

Main Methods:

• Graphical analysis to illustrate the implementation of flood risk trading for promoting mitigation measures.
• Development of a theoretical economic model to identify necessary conditions for flood risk trading.
• Exploration of a market-based approach to address flood management complexities.

Main Results:

• A flood risk trading program can facilitate the internalization of externalities and the realization of integrated river basin management.
• This approach can maintain efficient resource allocation while promoting a more equitable distribution of benefits through decentralization.
• The study shows how flood risk trading can encourage specific mitigation actions like increasing infiltration and storage.

Conclusions:

• Flood risk trading offers a promising market-based solution to enhance flood management, adaptation, and integrated river basin planning.
• The proposed program can lead to more efficient and equitable outcomes in managing flood risks.
• Economic conditions for the successful implementation of flood risk trading are theoretically defined.