Hydrologic and Economic Uncertainties and Flood-Risk Project Design

Abstract

Hydrologic, hydraulic, and economic uncertainties impact the economic attractiveness of flood-risk management projects. In particular, uncertainty in the calculation of expected annual damages introduces uncertainty into economic evaluations. This study develops a hypothetical basin to explore the performance of designs identified by different economic-risk decision models. A new decision model includes an explicit quantification of uncertainty in the marginal net benefits and hence in the reliability of net benefits generated by the last increment of a project. Monte Carlo analyses show that the uncertainty in total project benefits may not reveal large uncertainties associated with the last increments of a project. In terms of economic performance of the different descriptions of hydrologic risk, expected probability and traditional maximum likelihood flood-risk estimators are roughly equivalent. The new decision model identified less costly projects that achieved nearly the same average net benefits and had a greater probability of recovering the last dollar spent.