Publication: Efficiency and Equity in Urban Flood Management Policies: A Systematic Urban Economics Exploration
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Date
2023-02
ISSN
Published
2023-02
Author(s)
Liotta, Charlotte
Avner, Paolo
Hallegatte, Stéphane
Abstract
Flood exposure is likely to increase
in the future as a direct consequence of more frequent and
more intense flooding and the growth of populations and
economic assets in flood-prone areas. Low-income households,
which are more likely to be located in high-risk zones, will
be particularly affected. This paper assesses the welfare
and equity impacts of three flood management
policies—risk-based insurance, zoning, and subsidized
insurance—using an urban economics framework with two income
groups and three potential flood locations. The paper shows
that in a first-best setting, risk-based insurance maximizes
social welfare. However, depending on flood characteristics,
implementing a zoning policy or subsidized insurance is
close to optimal and can be more feasible. Subsidizing
insurance reduces upward pressure on housing rents but
increases flood damage, and is recommended for rare floods
occurring in a large part of a city. Zoning policies have
the opposite effect, avoiding damage but increasing housing
rents, and are recommended for frequent floods in small
areas. The social welfare impact of choosing the wrong flood
management policy depends on the location of floods relative
to employment centers, with flooding close to employment
centers being particularly harmful. Implementing flood
management policies redistributes flood costs between high-
and low-income households through land markets, irrespective
of who is directly affected. As such, they are progressive
in terms of equity, compared to a laissez-faire scenario
with myopic anticipations, in the more common scenario where
poorer populations are more exposed to urban floods. But
their impacts on inequality depend on flood locations and
urban configuration. For instance, in a city where floods
are centrally located and low-income households live in the
city center, subsidized insurance would mitigate a surge in
inequality, whereas a zoning policy could substantially
increase inequalities.
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Citation
“Liotta, Charlotte; Avner, Paolo; Hallegatte, Stéphane. 2023. Efficiency and Equity in Urban Flood Management Policies: A Systematic Urban Economics Exploration. Policy Research Working Papers;10292. © World Bank, Washington, DC. http://hdl.handle.net/10986/39409 License: CC BY 3.0 IGO.”