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Optimal Investment in Urban Drainage: A Framework for Cost‐Benefit Analysis

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  • Yew‐Kwang Ng

Abstract

This article addresses some basic issues (including distributional weights, discount rates, and the value of life) in the cost‐benefit analysis of urban drainage and provides a framework for the estimation of the optimal amount of investment for flood mitigation. This involves: (i) estimating the expected total damage from flooding in present‐value terms before flood mitigation; (ii) deriving the reduction in expected total damage as the average recurrent interval of flooding increases; (iii) estimating how this interval increases with the amount of investment in flood mitigation; and (iv) choosing the optimal investment by equating marginal benefit and marginal cost. The framework is also applicable to other accident or damage mitigation investments and some issues discussed are relevant to all types of cost‐benefit analysis.

Suggested Citation

  • Yew‐Kwang Ng, 1992. "Optimal Investment in Urban Drainage: A Framework for Cost‐Benefit Analysis," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 25(3), pages 19-28, July.
    • Handle: RePEc:bla:ausecr:v:25:y:1992:i:3:p:19-28
    DOI: 10.1111/j.1467-8462.1992.tb00587.x
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    References listed on IDEAS

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    1. Yew‐Kwang Ng, 1987. "Equity, Efficiency and Financial Viability: Public‐Utility Pricing with Special Reference to Water Supply," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 20(3), pages 21-35, September.
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