Cost–Benefit Analysis and Water Resources Management

Cost–Benefit Analysis and Water Resources Management

Edited by Roy Brouwer and David Pearce

How are the economic values of water and water quality accounted for in policy and project appraisal? This important book gives an overview of the state-of-the-art in Cost–Benefit Analysis (CBA) in water resources management throughout Europe and North America, along with an examination of current applications.

Chapter 4: Appraising Flood Control Investments in the UK

D.W. Pearce and R. Smale

Subjects: economics and finance, environmental economics, valuation, environment, environmental economics, management natural resources, valuation, water


4. Appraising flood control investments in the UK D.W. Pearce and R. Smale 1. INTRODUCTION The UK government has generally assumed the role of financing flood defence and coastal protection (hereafter just ‘flood protection’), but just how much should government spend? For any given budget constraint, appraisal procedures used by the government ministry responsible, the Department for the Environment, Food and Rural Affairs (DEFRA) make use of cost-benefit analysis (CBA) as part of an overall ‘scoring and weighting’ procedure to assign priority to different schemes. But the size of the budget constraint should itself be determined by a comparison of the social returns to flood protection and the social returns from alternative uses of that money. This chapter focuses primarily on the second question, that is, what is the appropriate size of the flood protection ‘budget’? Economic analysis would suggest that if there are higher social returns from expanding the existing budget than the returns on other uses of the money, then flood protection should be expanded. This may amount to changing the ‘return period’, that is, the probability of a flood in any given time period, so that risks are lowered relative to current design standards and effective current risks. We argue that: ● ● ● on the basis of the appraisal procedures currently used by DEFRA, there are extremely high net benefits from increased flood protection; benefit–cost ratios from added expenditure appear to be rising, rather than falling as might be expected; existing appraisal procedures understate bene...

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