Assignment 1: Required Assignment 2—The Case For, or Against, New Orleans

 

Sometimes one’s choices may involve catastrophic decisions and bear great risk and yet there can be no clear answer. For example, if a person gets a divorce, shutters a plant, sells a losing investment, or closes their business, will he or she be better off? The following case incorporates nearly all of the material you have covered this far and presents an example of one such choice where nearly all of the alternatives have a significant downside risk.

 

Review the following information from the article “A Cost-Benefit Analysis of the New Orleans Flood Protection System” by Stéphane Hallegatte (2005):

 

Hallegatte, an environmentalist, assigns a probability (p) of a Katrina-like hurricane of 1/130 in his cost-benefit analysis for flood protection. However, the levees that protect New Orleans also put other regions at greater risk. You may assume the frequency of other floods is greater than Katrina-like events (Vastag & Rein, 2011).

 

The new levees that were built in response to Katrina cost approximately fourteen billion dollars (in 2010). This is in addition to the direct costs of Katrina (eighty-one billion dollars in 2005).

 

50 percent of New Orleans is at or below sea level.

 

A 100-year event means that there is a 63 percent chance that such an event will occur within a 100-year period.

 

The following are the interested (anchored and/or biased) constituencies:

 

Residents of New Orleans—both those that can move and those who cannot move

 

Residents of the surrounding floodplains at risk from New Orleans levees

 

The Mayor of New Orleans

 

The federal government—specifically taxpayers and the Federal Emergency Management Agency (FEMA)

 

Assume that the availability heuristics make people more risk averse (populations drop, at least in the short term). Consider how this would affect the local economy.

 

You are an analyst at FEMA and are in charge of developing a recommendation for both the state and the local governments on whether or not to redevelop New Orleans.

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