Benefit-Cost Analysis of FEMA Hazard Mitigation Grants

TLDR

Mitigation reduces natural‑hazard losses by lowering vulnerability or hazard intensity, but its benefits must be weighed against costs, and benefit‑cost analysis—though conceptually straightforward—often proves challenging. This study applied benefit‑cost analysis to a statistical sample of nearly 5,500 FEMA mitigation grants from 1993–2003 for earthquake, flood, and wind hazards. The authors used HAZUS MH to estimate benefits with and without FEMA mitigation across regions for multiple hazards at varying probabilities and severities. The analysis found an overall benefit‑cost ratio of about 4:1, ranging from 1.5 for earthquake mitigation to 5.1 for flood mitigation, and sensitivity tests confirmed the robustness of these estimates.

Abstract

Mitigation decreases the losses from natural hazards by reducing our vulnerability or by reducing the frequency and magnitude of causal factors. Reducing these losses brings many benefits, but every mitigation activity has a cost that must be considered in our world of limited resources. In principle, benefit-cost analysis (BCA) attempts to assess a mitigation activity's expected net benefits (discounted future benefits less discounted costs), but in practice this often proves difficult. This paper reports on a study that applied BCA methodologies to a statistical sample of the nearly 5,500 Federal Emergency Management Agency (FEMA) mitigation grants between 1993 and 2003 for earthquake, flood, and wind hazards. HAZUS MH was employed to assess the benefits, with and without FEMA mitigation in regions across the country, for a variety of hazards with different probabilities and severities. The results indicate that the overall benefit-cost ratio for FEMA mitigation grants is about 4:1, though the ratio varies from 1.5 for earthquake mitigation to 5.1 for flood mitigation. Sensitivity analysis was conducted and shows these estimates to be quite robust.