Flooding: Toward a Municipal Contribution to Economic Risk Sharing
Bernard Deschamps,
Philippe Gachon,
Michel Leclerc and
Mathieu Boudreault
Additional contact information
Mathieu Boudreault: University of Toronto
No 69, IMFG Papers from University of Toronto, Institute on Municipal Finance and Governance
Abstract:
In Québec, flood damage costs have risen sharply over the past 40 years, partly due to population and property growth in flood-prone areas. This phenomenon is exacerbated by extreme weather events, such as torrential rains, some of which are on the rise in southern Québec in spring. Today, these costs are primarily covered by provincial and federal financial assistance programs and, to a lesser extent, by private insurance. These cost-sharing mechanisms give rise to moral hazard because they do not encourage municipalities or disaster victims to reduce risk. Municipalities need to be included in cost sharing because of their crucial role in land use planning and risk management. Similarly, disaster victims need to be included because they also have a role to play in reducing risk. This paper proposes and analyzes an economic contribution mechanism for municipalities that distributes the cost of damage to residential buildings more equitably. (Equity refers to a fair and just distribution of the financial burden based on the relative level of exposure to risk and the ability to reduce the risk for all parties involved.) The contribution is calculated for three medium-sized municipalities in Québec based on the sum of the average annual damage to each of the residential buildings located in their jurisdictions, and on property values. Three observations are drawn from this analysis: 1) a municipality's level of exposure is not correlated with its property value; 2) the low damage rate of a majority of buildings located in flood-prone areas justifies maintaining these buildings in these zones, provided that mitigation measures are implemented; and 3) relocating a minimum number of buildings would considerably reduce the municipality's economic contribution to damage costs. Implementing an economic contribution mechanism for municipalities and exposed citizens is intended to reduce the moral hazard and inequity generated by the current approach and encourage municipalities to implement mitigation and risk reduction measures. All stakeholders could equitably finance these measures.
Keywords: flood damage; flood risk sharing; moral hazard; economic equity; municipal contribution (search for similar items in EconPapers)
JEL-codes: H76 H84 Q51 Q54 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2024-09
New Economics Papers: this item is included in nep-env, nep-ipr, nep-mac and nep-ure
References: Add references at CitEc
Citations:
Published online
Downloads: (external link)
https://tspace.library.utoronto.ca/bitstream/1807/ ... looding_sept2024.pdf First version, 2024
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:mfg:wpaper:69
Access Statistics for this paper
More papers in IMFG Papers from University of Toronto, Institute on Municipal Finance and Governance Contact information at EDIRC.
Bibliographic data for series maintained by Enid Slack ().