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The Economic Effects of Floods

Investigations of a Stochastic Model of Rational Investment Behavior in the Face of Floods

  • John P. Brown

Part of the Lecture Notes in Economics and Mathematical Systems book series (LNE, volume 70)

Table of contents

  1. Front Matter
    Pages i-v
  2. John P. Brown
    Pages 1-4
  3. John P. Brown
    Pages 5-13
  4. John P. Brown
    Pages 14-23
  5. John P. Brown
    Pages 24-30
  6. Back Matter
    Pages 82-89

About this book

Introduction

There is by now a large literature on the economic aspects of flood control and flood relief policies. The contribution of this paper lies in its careful scrutiny of one single critical aspect of the economics of floods, the choice of land use by a single land­ owner. We analyze that choice using the methods of dynamic programming, and in particular, we show how that choice is dependent on the probability of floods for his piece of land. The theory we have developed here has been developed in the context of floods. In fact, this work grew out of an empirical study of flood plain damages, when we found that the underlying theory was not yet developed.! In fact, we feel that the theory is of much more general interest. It is a theory of optimal investment choice under uncertainty when that uncertainty is a result of destruction or failure of the investment at a random date. This is the case in flood plains, but it is also the appropriate basic theory for understanding investment decisions in the face of earthquakes, fires, war damage, avalanches, and other kinds of disasters. These are only the more dramatic examples of situations where replacement is required at an uncertain date.

Keywords

Behavior Earthquake Investment dynamic programming economics incomplete information information insurance learning probability programming simulation

Authors and affiliations

  • John P. Brown
    • 1
  1. 1.Dept. of EconomicsBrown UniversityProvidenceUSA

Bibliographic information

  • DOI https://doi.org/10.1007/978-3-642-80699-5
  • Copyright Information Springer-Verlag Berlin Heidelberg 1972
  • Publisher Name Springer, Berlin, Heidelberg
  • eBook Packages Springer Book Archive
  • Print ISBN 978-3-540-05925-7
  • Online ISBN 978-3-642-80699-5
  • Series Print ISSN 0075-8442
  • Buy this book on publisher's site
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