Modelling the interaction between flooding events and economic growth

Johanna Grames, Alexia Fürnkranz-Prskawetz, Dieter Grass, Alberto Viglione and Günter Blöschl

No 04/2015, ECON WPS - Working Papers in Economic Theory and Policy from TU Wien, Institute of Statistics and Mathematical Methods in Economics, Economics Research Unit

Abstract: Recently socio-hydrology models have been proposed to analyse the interplay of community risk-coping culture, flooding damage and economic growth. These models descriptively explain the feedbacks between socio-economic development and natural disasters such as floods. Complementary to these descriptive models, we develop a dynamic optimization model, where the inter-temporal decision of an economic agent interacts with the hydrological system. We assume a standard macro-economic growth model where agents derive utility from consumption and output depends on physical capital that can be accumulated through investment. To this framework we add the occurrence of flooding events which will destroy part of the capital. We identify two specific periodic long term solutions and denote them rich and poor economies. Whereas rich economies can afford to invest in flood defence and therefore avoid flood damage and develop high living standards, poor economies prefer consumption instead of investing in flood defence capital and end up facing flood damages every time the water level rises. Nevertheless, they manage to sustain at least a low level of physical capital. We identify optimal investment strategies and compare simulations with more frequent and more intense high water level events.

Keywords: flood; socio-hydrology; dynamic optimization; investment strategy (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-dge and nep-gro
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/120882/1/83614080X.pdf (application/pdf)

Related works:
Journal Article: Modeling the interaction between flooding events and economic growth (2016)
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:zbw:tuweco:042015

Access Statistics for this paper

More papers in ECON WPS - Working Papers in Economic Theory and Policy from TU Wien, Institute of Statistics and Mathematical Methods in Economics, Economics Research Unit Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().