Game-theoretic modeling of pre-disaster relocation

Vicki M. Bier, Yuqun Zhou and Hongru Du

The Engineering Economist, 2020, vol. 65, issue 2, 89-113

Abstract: Sea-level rise due to climate change is clearly an important problem. This paper uses game theory in conjunction with discounting to explore strategies by which governments might encourage pre-disaster relocation by residents living in areas at high risk of flooding due to sea-level rise. We find that offering a subsidy (e.g., a partial buyout) can be effective if government has a significantly lower discount rate than residents. We also present extensions to our model, exploring the use of a fixed annual benefit after relocation (instead of a one-time subsidy), and hyperbolic instead of standard exponential discounting. Numerical sensitivity analysis elucidates many important factors affecting the timing of anticipatory relocation, since for example relocating too soon may be costly to both residents and government if flooding risk is increasing only gradually. This conceptual model also provides a foundation for future studies that quantify the model with more realistic parameter values (e.g., realistic estimates of flooding probabilities), and alternative behavioral models of resident decision making.

Date: 2020
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DOI: 10.1080/0013791X.2019.1677837

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