Structural economic effects of large-scale inundation: a simulation of the Krimpen dike breakage

The paper’s main concern is to establish a general methodology for economic loss estimation as a result of a large-scale flooding. The issue of economic loss definition is addressed in an attempt to unify the scattered definitions currently circulating in the ‘disaster’ literature. Total effect includes the direct loss to households and government, direct business interruption and induced indirect losses on production all over the country. The input-output model is proposed as a basic modelling framework. The discussion involves appropriate definition of direct and indirect costs within this framework. Adaptations to the model are proposed to account for asymmetric shock aspects such as ‘production bottlenecks’ and substitution effects. The time dimension of the model is a 2-year period. A bi-regional input-output table is utilised for tracing the inter-regional ties within the country and to estimate the disaster-induced changes of the economic structure The case study of a dike breakage in the province of South Holland in the Netherlands provides an example of modelling vast economic consequences. Two basic models are compared: a reference standard input-output damage evaluation model and adjusted models examining the impact of economic recovery of production ‘bottlenecks’ and substitution effects from imports and production transfer to other regions. It is shown that with the same level of initial disruption final loss figure depends on the ability of an economy to adjust. Whereas the presence of ‘bottlenecks’ in the after-flood situation drags the final estimate far below the reference figure, the emergence of flexible conditions for the economic response provides more optimistic results.