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Optimal Investment in Urban Drainage: A Framework for Cost‐Benefit Analysis
Author(s) -
Ng YewKwang
Publication year - 1992
Publication title -
australian economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.308
H-Index - 29
eISSN - 1467-8462
pISSN - 0004-9018
DOI - 10.1111/j.1467-8462.1992.tb00587.x
Subject(s) - flood myth , investment (military) , drainage , cost–benefit analysis , flooding (psychology) , marginal cost , flood mitigation , marginal value , marginal utility , environmental science , total cost , economics , geography , microeconomics , psychology , ecology , archaeology , politics , political science , law , psychotherapist , biology
This article addresses some basic issues (including distributional weights, discount rates, and the value of life) in the cost‐benefit analysis of urban drainage and provides a framework for the estimation of the optimal amount of investment for flood mitigation. This involves: (i) estimating the expected total damage from flooding in present‐value terms before flood mitigation; (ii) deriving the reduction in expected total damage as the average recurrent interval of flooding increases; (iii) estimating how this interval increases with the amount of investment in flood mitigation; and (iv) choosing the optimal investment by equating marginal benefit and marginal cost. The framework is also applicable to other accident or damage mitigation investments and some issues discussed are relevant to all types of cost‐benefit analysis.