Water - the basis of life on Earth, and its impact on the economy cannot be overemphasized. Giant droughts, like extensive floods, can have devastating consequences for entire countries and regions. Mankind today not only depends on water, but it itself has a large impact on this resource - dams, the analysis of rivers and lakes for irrigation of fields, greenhouse gas emissions, and global climate change. The level of the world's ocean rises and in many coastal countries the risk of flooding large areas increases. Floods and their impact on the economy were studied at the Vienna Technical University (TU Wien).
The mathematical economist Johanna Grames developed conceptual models for describing economic decisions in long-term flood protection strategies. The conclusion turned out to be quite simple: the state should take responsibility for protection from floods, and not shift responsibility to land users. The necessary infrastructure of protection against water must be built centrally.
In the field of hydrology, research is being conducted on the impact of agriculture and human infrastructural activities on the risk of flooding over the next decades. But there were practically no scientific papers on the bilateral interaction of water systems and the economy of the state. Optimization of these interactions will produce ready-made solutions that work in the long term: how to behave to society, whether to build huge, expensive dams to protect an object or simply move this object away from the coast? Insure agricultural crops or erect protective structures? Correct answers to these questions will save a huge amount of money and will be useful for the country's economy.
Johanna Graems explored these questions within her dissertation on the application of stochastic and mathematical methods in the economy. This work became part of the "Viennese doctoral program on water systems" - an interdisciplinary study led by a recognized flood expert, Austrian academician and engineer Günter Blöschl.
Mathematical and economic analysis has shown that both the public and private sectors play an important role in flood protection. Companies, naturally, want to reduce their own risks. The amount of potential losses depends on the probability of occurrence of a hazardous flood and on invested capital. And you need to calculate the amount of investment in protective measures and their payback in the long term. The funds directed to the construction of dams and canals can simply not pay off even if they are partially subsidized by the government.
Part of the land users will refuse any protection measures if they affect their budget, and therefore the global system of dams should be planned and built by the state itself. Each of their economically interested parties should focus on what they can and should do best: the government must provide a large-scale protection of the population and facilities, and the business will bring investments to areas less risky in terms of floods.
Calculations showed that public investment in infrastructure is better than direct subsidies to companies that conduct economic activity in potentially dangerous regions. Business is often not invested in protection but tries to maximize short-term profits. The government's construction of a protective structure actually also subsidizes producers but is mediated. If the farmer's fields do not flood one more time - this means the farmer will grow more crops, get more income, and the budget will, in turn, receive more taxes. In general, this provides economic growth of the protected region, and mathematical models confirm this. Instead of several compensations for the loss of agricultural crops, it is more profitable to build one dam, which will protect them for decades to come.
However, such investment strategies are not always suitable for all regions of our planet. Interestingly, from a macroeconomic point of view, there are two alternative scenarios, each of which has the right to life and implementation. They provide a local maximum of economic indicators.
In rich countries, such as Austria or the Netherlands, huge investments in flood protection are the best way to reduce risk and ensure economic growth. Existing scientific developments, engineering solutions and free capital allow this.
In the poorest regions of the Earth, for example, in the Mekong delta in Vietnam, there is no necessary resources for large-scale protective projects. This means that it is profitable to accept the current situation with the risks of the onset of water. First you need to increase your economic power, and only then reduce the risk of flooding infrastructure. Otherwise there is little chance of success of individual local projects.
This work has become a new field of scientific research - at the junction of different disciplines there has appeared economic or even social hydrology. Perhaps it will still bring a lot of useful to humanity.
