An economic model of floodplain land use and land use policy

Abstract

A landowner in a floodplain must choose a way to use his land from n available alternative activities. We develop a model that describes that choice as a function of the probability of a flood when the criterion is expected present value. We show the expected present value calculations for four simple benefit stream patterns: no‐decay, one‐hoss shay, experimental decay, and delayed benefits. Within this model we define and discuss several often elusive concepts: the damage due to one flood, the hazard due to being in the floodplain, and the benefits of flood probability reduction. We then show the relationship between the benefits of flood control and damage reduction, and point out that they are not identical. With this model we have a common framework for comparing such disparate flood relief and control policies as floodplain zoning and flood relief measures. Finally we show the misallocative effects of simple flood relief policies.