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The Flooding Game -- Flood Retention In The Light Of Economic Theory

Congress: 2015
Author(s): Thomas Hartmann, Jirina Jilkova, Jan Machac
Purkyne University1

Keyword(s): Sub-theme 10: Management of water resources,
AbstractUS$ 15.200 million -- that is the estimated damage of the river floods in summer 2013 in Europe; it is roughly the same as after the flood event in 2002 (US$ 16.500 million) (Munich Re, 2014). Europe is economically highly vulnerable against river floods. Traditional flood protection with dikes fails, because flood levels exceed the design levels of dikes, dikes break, and increasing dikes along the rivers also accelerates the flood waves and worsens the risk downstream. But in fact, there is an increasing agreement on the way how to cope with increasing river floods in Europe: retain water in the water cycle to prevent floods (retention), and adapt vulnerable land uses to the flood risk (resilience). Almost each large flood event of the past two decades trailed off claims for more retention and resilience. Retention and resilience cannot substitute traditional flood protection (i.e. dikes) entirely, but its value for reducing flood risk has been discussed and acknowledged in the academic debate (Bruijn, 2005; Patt & Jüpner, 2013) and politics (Directive 2007/60/EC).

Water retention is about temporary storing water in the water cycle (Morris, Beedell, & Hess, 2014): Within a riparian system, we can distinguish three options to store water: in the hinterland, before the water reaches the riparian system (Natural Water Retention Measures), in and along the water bodies in polders and floodplains (space for the rivers), and in 'resilient cities'. Those options have different advantages and disadvantages, but one common issue of them is that they all only work if applied on the level of a river basin area.

The technical and hydrological conditions and constraints are relatively well-known (Patt & Jüpner, 2013). The main challenge is to implement them on the land (Akhmouch, 2011; Warner et al., 2012). This land, namely, is most often in use by private landowners. This makes retention and resilience a matter of land management (Hartmann, 2011). Making land available is one of the major hurdles of contemporary flood risk management (Hartmann & Spit, 2012). Traditionally, water management tries to become the landowner of land for floods. What are alternative ways to make land available for retention and resilience?

Economic theory and applied policy offer some possible solutions to the issue of flooding. The most common approach, which is also politically most feasible, is based on neoclassical environmental economics. The neoclassical approach uses as a basic tool cost-benefit analysis that compares the measures at their costs and benefits. The application of CBA recommends e.g. Water Framework Directive (Wateco, 2003). This procedure is associated with considerable uncertainty especially on the part of the determination of benefits and ignores the property rights and the possibility of stakeholders negotiating or other dynamic elements (Jensen et al., 2013; Laurans, 2006). Other economic solution could be arrangements and agreements within river basin areas between landowners. However, a big unsolved issue in river basins is the relation between upstream and downstream parties. How can property right arrangements between landowners be simulated to store water upstream respectively adapt land uses in the hinterland and in cities? This explorative paper addresses this question. We put property rights in a river basin area upfront and combine the concepts of retention and resilience with game theory.

Methodologically, a game theory approach is applied to analyse the relation between upstream and downstream landowners. How do payoff matrixes between upstream and downstream respectively cities and the hinterland change when certain property rights are adjusted or institutional conditions are changed? What if liability issues, responsibilities, and externalities of flood protection measures are reframed? Who should pay and who profit from retention measures? The aim of those thought experiments is to develop concepts of land management for retention and resilience within a river basin area. Theories on environmental governance (i.e. free-market approaches and institutional ecological economics) provide the basis for the thought experiments (Slavíková & Jilkova, 2010). They are combined with previous research on flood risk management and plural rationalities (Hartmann, 2011).

The results show the effects of certain arrangements and provide a framework for the implementation of actual policies, on the one side, but on the other side, this research also reveals the need for further empirical test pilots on different concepts for flood risk management.

The presented results of models built on the theory demonstrate the applicability of this method in issues of the floods. Setting property rights and the possibility of compensation offers an alternative to the classical method of CBA. The including of local conditions, negotiation and property rights can lead to greater efficiency of measures. Akhmouch, A. (2011). Water governance in OECD countries. Paris: OECD.
Bruijn, Karin M. de. (2005). Resilience and flood risk management. Delft: University Press.
Hartmann, T., & Spit, T.. (2012). Managing riverside property. In T. Hartmann & B. Needham (Eds.), Planning by law and property rights reconsidered (97–114). Farnham: Ashgate.
Hartmann, T. (2011). Contesting land policies for space for rivers. Journal of Flood Risk Management, 4(3), 165–175.
Jensen, C. L. et al. (2013). A practical CBA-based screening procedure for identification of river basins where the costs of fulfilling the WFD requirements may be disproportionate – applied to the case of Denmark. Journal of Environmental Economics and Policy, 2013. 2 (2) 164-200.
Laurans, Y. 2006. Implementing cost-effectiveness analysis. Berlin: Messe Wasser - International Conference, 5. April 2006.
Morris, J., Beedell, J., & Hess, T.M. (2014). Mobilising flood risk management services from rural land. Journal of Flood Risk Management. doi:10.1111/jfr3.12110
Munich Re. (2014). Topics GEO – Natural catastrophes 2013. Online: www.munichre.com.
Patt, H., & Jüpner, R. (eds). (2013). Hochwasser Handbuch. Heidelberg: Springer.
Slavíková, L., Kluvánková-Oravská, T., & Jílková, J. (2010). Bridging theories on environmental governance. Ecological Economics, 69(7), 1368–1372.
Warner, J. F., van Buuren, A., & Edelenbos, J. (eds). (2012). Making space for the river. London: IWA.
WATECO. (2003). Common Implementation Strategy for the WFD (2000/60/EC). Guidance Document No 1. Luxembourg: Office for Official Publications of the European Communities, 2003.

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