![]() ![]() The costs of measures needed to protect those deltas are estimated in the order of tens of billions of US$/yr (Hinkel et al., 2014 Ward et al., 2017). ROA provides relevant insights for policy makers which can not be reached with standard cost-benefit analysis: first: use high scenarios for the design of measures with high fixed costs (like dikes), and second: the value of flexibility due to room for the river measures increases with uncertainty.Įspecially in urbanized deltas, present-day flood risks are high and, if no actions are taken, will continue to increase in the future due to population growth, climate change, and soil subsidence (e.g., Winsemius et al., 2016). Limitations are the complexity, the recognition and quantification of uncertainty, and the mapping of possible decisions in time. The ROA for the realistic case study needs a high level of geographical detail, a large number of future scenarios, and the inclusion of stakeholders' preferences. We develop robust dike investment strategies and value the flexibility offered by room for the river measures. We examine benefits and limitations by applying ROA to a realistic case study in the Netherlands. Real options analysis (ROA) can help to design and evaluate robust and flexible strategies but is hardly used. Integrating flexibility or robustness in the decisions are two different ways to deal with this. Decisions on flood risk management measures are often difficult because the future is uncertain, resulting in possible over- or underinvestments. Worldwide, large amounts of money are needed to protect growing populations against increasing flood risks. Lower scenarios may be used when alternatives offer future flexibility. On basis of this study, we give general recommendations to use high discharge scenarios for the design of measures with high fixed costs and few alternatives. Decision trees have to be generated and stakeholders' preferences have to be translated into decision rules. In particular, relevant sources of uncertainty need to be recognized, quantified, integrated, and discretized in scenarios, requiring subjective choices and expert judgment. We found several limitations of applying the ROA. The ROA for a realistic case requires a high level of geographical detail, a large ensemble of scenarios, and the inclusion of stakeholders' preferences. We benchmark the results of ROA against those of a standard cost-benefit analysis and show ROA's potential policy implications. We develop robust dike investment strategies and value the flexibility offered by additional room for the river measures. We illustrate how ROA identifies optimal short-term investments and values future options. ![]() In this paper, we investigate benefits and limitations of a ROA, by applying it to a realistic FRM case study for an entire river branch. Although its potential benefits are large, ROA is hardly used in todays' FRM practice. Real options analysis (ROA) provides a welfare-economics framework to design and evaluate robust and flexible FRM strategies under risk or uncertainty. ![]() Flexibility and robustness can be used to deal with future uncertainty. Decisions on long-lived flood risk management (FRM) investments are complex because the future is uncertain.
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