Are interactions important in estimating flood damage to economic entities?

Abstract

Abstract. Estimating flood damage, although crucial for assessing flood risk and for designing mitigation policies, continues to face numerous challenges, notably the assessment of indirect damage. It is widely accepted that damage other than direct damage can account for a significant proportion of total damage. Yet due to more scarce data sources and lack of knowledge on links within and between economic activities, indirect impacts have received less attention than direct impacts. Furthermore, attempts to grasp indirect damage through economic models have not gone below regional levels. Even though local communities can be devastated by flood events without this being reflected in regional accounts, few studies have been conducted from a microeconomic perspective at local level. What is more, the standard practices applied at this level of analysis tackle entities but ignore how they may be linked. This paper addresses these two challenges by building a novel agent-based model of a local agricultural production chain (a cooperative winemaking system), which is then used as a virtual laboratory for the ex-ante estimation of flood impacts. We show how overlooking existing interactions between economic entities in production chains can result in either overestimation (double counting) or underestimation (wrong estimation of the consequences for the activity) of flood damage. Our results also reveal that considering interactions requires thorough characterization of their spatial configuration.Based on both the application of our method and the results obtained, we propose balanced recommendations for flood damage estimation at local level.

Comment on nhess-2021-398

“…As an example, on agricultural assets, Brémond and Grelot (2012) identified induced damage at farm scale due to the links between farm plots and buildings. Nortes Martínez et al (2020) shows the importance of interactions betweens farms and the cooperative at a winery cooperative scale and the consequences on flood damage estimation. So first, clearly defining the limits and the components of the system under consideration is necessary to avoid problems of double counting or forgetting damage.…”

“…In the case of agriculture, the added value increases on the plots and is then stored and transformed in other spatial entities on or off the farm. Nortes Martínez et al (2020) shows the importance of these interactions for avoiding over or understimate in damage assessment. Because of the complexity of these mechanisms of localisation of added value in a production chain, the FHRC recommends, in an operational way, not to take into account the indirect effects (Penning-Roswell et al, 2005).…”