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Financial Instruments for Mitigation of Flood Risks: The Case of Florence

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  • Fabio Castelli
  • Marcello Galeotti
  • Giovanni Rabitti

Abstract

This article analyzes the mechanisms and effects of innovative financial instruments that a central public administration (CPA) may adopt to minimize the flood risk in particularly exposed regions. The pattern we suggest assumes that in risky areas the CPA can issue two financial instruments, called project options and CAT‐bonds, producing a dynamic interaction among three types of agents: the CPA itself, the local public administrations, and private investors. We explore the possible scenarios of such interaction and the conditions under which the CPA's goal of maximal risk reduction is attained. This pattern is proposed for flood risk mitigation in the city of Florence, where the model dynamics are tested assuming parameters obtained from engineering studies.

Suggested Citation

  • Fabio Castelli & Marcello Galeotti & Giovanni Rabitti, 2019. "Financial Instruments for Mitigation of Flood Risks: The Case of Florence," Risk Analysis, John Wiley & Sons, vol. 39(2), pages 462-472, February.
    • Handle: RePEc:wly:riskan:v:39:y:2019:i:2:p:462-472
    DOI: 10.1111/risa.13164
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    References listed on IDEAS

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    1. J. Ballesteros-Cánovas & M. Sanchez-Silva & J. Bodoque & A. Díez-Herrero, 2013. "An Integrated Approach to Flood Risk Management: A Case Study of Navaluenga (Central Spain)," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 27(8), pages 3051-3069, June.
    2. Angelo Antoci & Simone Borghesi & Marcello Galeotti, 2013. "Environmental options and technological innovation: an evolutionary game model," Journal of Evolutionary Economics, Springer, vol. 23(2), pages 247-269, April.
    3. David Croson & Andreas Richter, 2003. "Sovereign Cat Bonds and Infrastructure Project Financing," Risk Analysis, John Wiley & Sons, vol. 23(3), pages 611-626, June.
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    Cited by:

    1. Ilaria Colivicchi & Gianluca Iannucci, 2023. "The Environmental Responsibility of Firms and Insurance Coverage in an Evolutionary Game," Dynamic Games and Applications, Springer, vol. 13(3), pages 801-818, September.
    2. Emanuele Vannucci & Andrea Jonathan Pagano & Francesco Romagnoli, 2021. "Climate change management: a resilience strategy for flood risk using Blockchain tools," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 44(1), pages 177-190, June.
    3. Galeotti, Marcello & Rabitti, Giovanni & Vannucci, Emanuele, 2020. "An evolutionary approach to fraud management," European Journal of Operational Research, Elsevier, vol. 284(3), pages 1167-1177.

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