The Case For, or Against, New Orleans

The Case For, or Against, New Orleans Sometimes one’s choices may involve catastrophic decisions and bear great risk and yet there can be no clear answer. For example, if a person gets a divorce, shutters a plant, sells a losing investment, or closes their business, will he or she be better off? The following case incorporates nearly all of the material you have covered this far and presents an example of one such choice where nearly all of the alternatives have a significant downside risk. Review the following information from the article “A Cost-Benefit Analysis of the New Orleans Flood Protection System” by Stéphane Hallegatte (2005): Hallegatte, an environmentalist, assigns a probability (p) of a Katrina-like hurricane of 1/130 in his cost-benefit analysis for flood protection. However, the levees that protect New Orleans also put other regions at greater risk. You may assume the frequency of other floods is greater than Katrina-like events (Vastag & Rein, 2011). The new levees that were built in response to Katrina cost approximately fourteen billion dollars (in 2010). This is in addition to the direct costs of Katrina (eighty-one billion dollars in 2005). 50 percent of New Orleans is at or below sea level. A 100-year event means that there is a 63 percent chance that such an event will occur within a 100-year period. The following are the interested (anchored and/or biased) constituencies: Residents of New Orleans—both those that can move and those who cannot move Residents of the surrounding floodplains at risk from New Orleans levees The Mayor of New Orleans The federal government—specifically taxpayers and the Federal Emergency Management Agency (FEMA) Assume that the availability heuristics make people more risk averse (populations drop, at least in the short term). Consider how this would affect the local economy. You are an analyst at FEMA and are in charge of developing a recommendation for both the state and the local governments on whether or not to redevelop New Orleans. Write a report with your recommendation. Address the following in your report: Part A Analyze the economics of New Orleans in light of the above parameters and develop your own Cost-Benefit Analysis (CBA) for rebuilding. Evaluate the value of the CBA for each constituency and integrate these estimates into a scenario model and/or decision tree. Analyze the results. Clearly each of these constituencies may both overlap and be prey to a variety of group dynamics internally. For one of these options, discuss the decision pitfalls to which they may be susceptible and make a recommendation on how to alleviate these pressures. Starting with your CBA, estimate the relevant expected utility for the interested constituencies. Note: You need not have absolute amounts but your relevant utilities should be proportional to one another. Hint: If you assume that your total CBA for New Orleans is fixed for each constituency (do not forget the overlaps), then each constituency will have a piece of the utility pie. Part B Make a case for or against rebuilding the city of New Orleans. This should be an executive summary; be concise and brief. Include exhibits. Whether you are for or against, discuss how social heuristics could be used to your advantage, both ethically and unethically, in making your case. You may choose to fill the role of one of the constituents, if you prefer. Hallegatte, S. (2006). A cost-benefit analysis of the New Orleans flood protection system. Center for Environmental Sciences and Policy. Stanford University. Retrieved from http://hal.cirad.fr/docs/00/16/46/28/PDF/Hallegatte_NewOrleans_CBA9.pdf Vastag, B., & Rein, L. (2011, May 11). In Louisiana, a choice between two floods. The Washington Post. Retrieved from http://www.washingtonpost.com/national/in-louisiana-a-choice-between-two- floods/2011/05/11/AFrjFotG_story.html Assignment 1 Grading Criteria Maximum Points Analyze the economics of New Orleans in light of the given parameters and develop a Cost- Benefit Analysis (CBA) for rebuilding. 32 Evaluate the value of that CBA for each constituency and integrate these estimates into a scenario model and/or decision tree. Analyze the results. 68 Discuss the decision pitfalls to which constituencies may be susceptible and make a recommendation on how to alleviate those pressures. 32 Starting with the CBA, estimate the relevant expected utility for these parties. 32 Make a case for or against rebuilding the city of New Orleans. This should be an executive summary—be concise and brief. Include exhibits. 68 Discuss how social heuristics could be used to an advantage, both ethically and unethically, in making a case. 32 Estimate what percentage of the class was for, versus against, rebuilding and provide a confidence interval for the estimate. 8 Ensure academic writing, such as grammar, spelling, and attribution of sources, is appropriate. 28 Total: 300 A Cost-Benet Analysis of the New Orleans Flood Protection System Stephane Hallegatte To cite this version: Stephane Hallegatte. A Cost-Benet Analysis of the New Orleans Flood Protection System. AEI-Brookings Joint Center. Regulatory Analysis, 2006, pp.06-02. < hal-00164628 > HAL Id: hal-00164628 https://hal.archives-ouvertes.fr/hal-00164628 Submitted on 22 Jul 2007 HAL is a multi-disciplinary open access archive for the deposit and dissemination of sci- entic research documents, whether they are pub- lished or not. The documents may come from teaching and research institutions in France or abroad, or from public or private research centers. L'archive ouverte pluridisciplinaire HAL , est destinee au dep^ot et a la diusion de documents scientiques de niveau recherche, publies ou non, emanant des etablissements d'enseignement et de recherche francais ou etrangers, des laboratoires publics ou prives. 1 A Cost-Benefit Analysis of the Ne w Orleans Flood Protection System Stéphane Hallegatte 1 Center for Environmental Sciences and Policy, Stanford University, and Centre International de Recherche sur l'Enviro nnement et le Développeme nt, Ecole Nationale des Ponts-et-Chaussées Abstract In the early stages of rebuilding New Or leans, a decision has to be made on the level of flood protection th e city should implement. Such decisions are usually based on cost-benefit analyses. But in such an analysis, the results are contingent on a number of underlying assumptions and va rying these assumptions can lead to different recommendations. I ndeed, though a standard first- order analysis rules out category 5 hurricane protec tion, taking into account c limate change and other human-related disruptions of environmen t, second-order impacts of large-scale disasters, possible changes in the di scount rate, risk aversion and damage heterogeneity may make such a hurricane pr otection a rational i nvestment, even if countervailing risks and moral hazard issu es are included in the analysis. These results stress the high sensitivity of th e CBA recommendation to several uncertain assumptions, highlight the importance of second-order costs and damage heterogeneity in welfare losses, and show how climate change creates an additional layer of uncertainty in infrastructure desi gn that increases the probability of either under-adaptation (and increased risk) or over-adaptation (and sunk costs). Introduction Six months after the deadly landf all of the category 4 Hurricane Ka trina on New Orleans, there is an active debate about the rec onstruction of New Orleans and th e design of its future flood protection system ( e.g. , Schwartz, 2005; Bohannon and Enserink, 2005). Although the reconstruction of New Orleans ha s been questioned by House Speaker Dennis Hastert and is still a debated question (Hahn, 2005), this paper will assu me that it will be eventually carried out and focus on an adjacent question, namely the necessity of making the city flood protection system able to cope with category 5 hurricanes. 1 corresponding author (hallegatte@centre- cired.fr). I am grateful to Philippe Ambrosi, Hans-Martin Füssel, François Gusdorf, Minh Ha-Duong, Robert Hahn, Mike Jackson, Mike Mastrandrea and Jonathan Wiener for very useful suggestions and advices on the form and content of this article. This research was supported by the European Commission's Project No. 12975 (NEST) “Extreme events: Causes and consequences (E2-C2)”.