Estimating the Socioeconomic Impacts of Flooding on Regional Economies With a Computable General Equilibrium Model

Abstract

AbstractThe growing number of flood events in urban areas is causing far‐reaching economic losses and social disruptions. To implement suitable flood risk management strategies and measures for flood prevention and mitigation, it is paramount to adequately assess economy‐wide losses associated with potential flood events. The assessment of potential flood damage in the USA relies significantly on the Federal Emergency Management Agency (FEMA) Hazus Flood Model. A primary requirement to reduce uncertainty is to empirically gather user input data. Consequently, there is a need to integrate publicly accessible business data for accurate evaluation of losses in business activities. We present a novel approach for estimating both the direct losses in business activities during a flood and the total economy‐wide impact that arise from these disruptions. First, we integrate the FEMA Hazus Flood Model with Reference Solutions business‐level data to estimate the reduction in business activities (i.e., direct losses) following a 100‐year flood event in New Hanover County, North Carolina. Second, we estimate the broader economy‐wide impact these business activity losses have on total industry output, employment, value‐added and household income using a regional computational general equilibrium model. The advantage of our approach is the easy replicability of the business loss estimation process for US cities and regions of interest, which, when used in a follow‐up economic impact study, leads to estimating the total economy‐wide losses in economic activities. Policy makers relying solely on direct physical and economic damages would, by ignoring indirect losses, underestimate the benefits of investing in flood mitigation and protection.