Economic Assessment of Mitigating Damage of Flood Events: Cost-Benefit Analysis of Flood-Proofing Commercial Buildings in Umbria, Italy

Abstract

Floods are among the costliest natural disasters worldwide. Integrated flood risk management approaches involving both public and private measures have been proposed to cope with trends in flood risk. These approaches are hampered by a lack of information about the cost-effectiveness of private flood damage mitigation measures. This study examines the economic desirability of flood-proofing different types of commercial buildings in Umbria, which is a flood-prone region in Europe. A cost-benefit analysis (CBA) is applied, which uses empirical information on flood damages to a variety of commercial activities. The CBA accounts for a diversity of uncertainties, including those of flood damage statistics and related flood-proofing benefits derived from bootstrap methods. Results show that, on average, dry flood-proofing is economically attractive for certain categories of commercial buildings. The flood probability and uncertainty of damage are key factors driving CBA results. Implications of our findings for policymakers and insurers are discussed.