The economy of New Orleans changed greatly after the hurricane nearly sweeping it out. The building of ship, the programs set in place for space and the banking activities are either gone or altered completely. The current economy is mostly dwelling on medical healthcare, manufacturing that uses high level of technology or the modern ways of processing raw materials. The former big players; tourism, petrol products and the major ports are still on the lead. Anything could have taken place due to the failing of the levees set in place where the city also flooded. There were suggestions from people of how The New Orleans was completely finished but only remained a small touring city because of the spared French Quarter. The levee construction, as well as the rebuilding of the region required billions of federal dollars. There is a reduced workforce due to the fall in population which has reduced the revenue generated to further boost the economy of the region. Predicting the future would not be an easy task.
After the catastrophe that befell New Orleans, there is a controversial issue on whether to redevelop the New Orleans (Schwartz, 2005). Despite the debate on this issue, this article would assume the reconstruction of New Orleans. We shall begin by developing a Cost Benefit Analysis for the reconstruction of the New Orleans.
In order to achieve an effective Cost Benefit Analysis, we need to assess various factors such as the cost of that system, as well as the benefits expected. It is not a complicated task to assess the cost of the upgrade of the protection system, albeit there is a requirement of a definition that is precise that deals with the system. It also requires a valuation of the construction and cost of maintenance. In the initial stages where rebuilding was taking place, the officials of the state evaluated the cost of protection of category 5 at around $32 billion dollars, in comparison with $1 billion cost for the restoration of the initial protection of category 3 (Schwartz, 2005). There is a missing information on the cost of category 4 protection, thus we assume that it is $5 billion, leading to the additional cost of protection $27 billion.
It is not an easy task to assess the benefits expected since one needs to consider the nature benefits such as casualty avoidance, losses on the economy, injuries and psychological trauma among others. These nature benefits should bring an effect to the various groups of people, as well as should not occur in the near future (Adler, 2005).
Despite the nature of the problems above, benefits can be regarded as the net present value of the amount expected of damages that can be avoided by the upgrade of the protection system. The benefits can thus be computed as the sum discounted from every year, from present the whole time of the protection system, of the probability that is calculated annually, that the new category of hurricane hits New Orleans, multiplied by the change of such a hurricane of the previous category and the present category protection system. The change is reduced to consider the fact that the equivalent benefit has a higher significance of valuation when it occurs in the short run rather than in the long run. The three parameter values; the rate of discount (δ), the occurrence probability (p) and the avoidable damages amount of the year n (Dn). Out of these parameters, the expected benefits can easily be calculated. The formula can be shown below:
![]()
We assume that the rate of damages and the economic growth are the same over time, which is a hypothesis that can be regarded as conservative, when putting into consideration the current losses in the growth of the economy that are brought by natural disasters. The expected benefits would thus be computed as below:
![]()
D0is the damages amount that would be brought by flooding in New Orleans today. In the case where the cost of the protection system of the flood appears to be lower than the benefits expected, at that juncture, the system should be adopted. Considering the hardships that may be experienced, a roughly made assessment on the benefits can be attained with respect to the information given currently. From the experience gained through observing the hurricane’s frequencies before, an annual probability can be evaluated that the present category hurricane hits New Orleans at about p = 1/500.
The estimate above is not grounded solidly since it does not consider important process, whose effects could be substantial. It is important that we review the CBA parameters and suggest other estimates that may be used. It is evident that current knowledge on the consequences of natural disaster still appears difficult to assess the available probabilities with respect to whichever confidence level. In the CBA, the historical evidence that were used in assessing the occurrence probability of a new hurricane category cannot be deliberated as robust, since, a protection system of floods is a long run effect. The flood protection system should shape the development of the city over a long period of time. The next year’s decisions will compel the flood protection of the area for a longer period of time, like a century. The problem that arises from this is future change of climate due to the human activities such as the green-house effect. There is uncertainty in the strength of future hurricane. The changes might lead to mean changes of the hurricane that will lead to probability change.
We need to evaluate the value of CBA for each constituency. We assume that the previous category of the flood protection system does not diminish the damages that are as a result of the current category hurricane, the present expected benefit of the current category of the flood protection system can then be computed at $8.5 billion with a rate of discount at 7 percent whereby the residents of New Orleans get $3.7 million, the residents of the surrounding floodplains get $3 million, the mayor gets $1.5 million and the federal government gets $0.3 million. The magnitude order is lower than the cost of building such a system. The rough estimate rules out a protection system upgrade that will enable it cope with even more than 5 storms to come. Our CBA advocates that it is more balanced to live the Katrina catastrophe in an extra or less distant future.
Each of the constituencies may overlap, and be prey to a variety of group dynamics internally. The propositions that can be obtained from the reconstruction of the New Orleans provide a perspective that is comparative. The decisions that have been adopted that make the New Orleans susceptible to Katrina, shows a reflection of a pattern that is long term, of the response of the society to events that are hazardous. They include the reduction of consequences that depend on events that are frequent, as well as vulnerability increase to every rare and large event.A flood system of protection that has funds from the nationwide taxes, can act as an incentive for people to move back to that area. This results to less people resettling back to New Orleans because of a repeat of the catastrophe. It should be taken into consideration that the development of the areas surrounding the New Orleans has not been driven by overprotection from hurricanes but the trading activities by the low income earners around that area.The worst scenario may arise when the protected area which would raise the population and investments, would no longer be protected in few decades thus leading to a larger vulnerability than it was before. To avoid such an occurrence, designs and implementation of future flood system must be done with a lot of care so as to protect the existing urbanized areas.
The relevant expected utility for the interested constituencies in the above CBA is as follows. Different rates of discounts are used to analyze the policy of decisions. The different rates of discount are appropriate for assessing the sturdiness of findings, with respect to the discount rate choice, as well as capturing two approaches to the CBA. In the first approach, the rate of discount is calculated as the capital’s opportunity cost, which results to a 7 percent, especially where the reallocation of capital involved is strong. In the second approach, the rate of discount is computed as the social rate that is used by the people’s savings, which results to a 3 percent value. Of the two approaches, the most appropriate is the first one whose value lies at 7 percent, since the flood protection system of New Orleans, deals with allocation of capital that is optimal.
$20 billion dollars can be estimated as the cost of the flooding of the residents of New Orleans. We shall estimate this value to be $5 million to the mayor of New Orleans. Individuals would not hesitate to emolument $5 billion dollars so as to circumvent the human toll of the flood of New Orleans. A $5 billion dollars can then be added to take care of the traumas and injuries of the individuals residing at the floodplains. The rough estimates lead to about a $30 billion dollars of the estimation of the flood cost of the New Orleans as a total of all the constituencies.
In conclusion, a flood protection system must be built with a lot of care that would help the New Orleans both in the short run and in the long run. The protection system must take care of all the interested constituencies.
References
Adler, M.(2005). Equity Analysis and Natural Hazards Policy, AEI-Brookings Joint Center forRegulatory Studies
Schwartz, J.(2005). Full flood safety in New Orleans could take billions and decades, The New-YorkTimes
han.al
part_a.docx
0
