Cost-Benefit Analysis of Seawalls in South Korea: A Bottom-Up Assessment

ABSTRACT

We present a cost-benefit analysis of coastal protection via seawalls in South Korea against climate-change-induced sea level rise. This is the first bottom-up analysis for South Korea, deriving the optimal solution from extensive geographical and financial databases with detailed street-address-level information. Our analysis indicates that the net benefit is maximized if seawalls are built along 21% of the South Korean coast. By comparing the bottom-up solution to the aggregate solution and utilizing a comprehensive sensitivity analysis, we highlight two implications for the climate change economics literature. First, the country-level aggregate analysis adopted by many existing studies may include a sizable aggregation bias. Second, relative to the climate change mitigation problem, the coastal protection problem is less sensitive to the choice of the discount rate.

KEYWORDS:

• aggregation bias
• climate-change-induced sea level rise
• coastal protection via seawalls
• cost-benefit analysis
• discount rate
• sensitivity analysis

Acknowledgment

We are grateful to two anonymous referees, and especially to our Coastal Management Associate Editor, for many detailed and constructive comments that greatly improved this paper. Min acknowledges the support from Konkuk University's research support program for its faculty on sabbatical leave in 2014.

Funding

This work was carried out with the support of a Korea Environmental Institute project “Establishment of Impact Assessment System and Inundation Assessment of Cropland by Sea Level Rise (Project No. PJ010475012016)” funded by Rural Development Administration, Republic of Korea. This work was also supported by a research project “Development of Integrated Estuarine Management System” funded by the Ministry of Oceans and Fisheries, Republic of Korea.

Notes

1. In the U.S., climate change adaptation policies have been led by local governments (Fluharty 2012), which may explain the relative dearth of national level studies.

2. Building seawalls may affect the incentive of property owners (Kittinger and Ayers 2010) with possible consequences on damage estimates. This aspect has not been considered in our analysis.

3. Yohe et al. (1996) estimate the value of lost land from the value of the inland in which coastal community will be rebuilt if current coastline is not protected. While this approach has great merit, it has its own drawbacks including the assumption that individuals make optimal choices with near perfect information.

4. The Supplements to this paper contain a more complete description.

5. is the total damage occurring when no protection is made. by construction. Similarly, is the total cost when full protection is made. .

6. The shape of reflects the cumulative distribution function of the property prices. The Supplements to this paper contain further explanation.

7. The maximum value is set to be so that total damage is . Using the notation introduced earlier, . In the case of cost, we define .

8. See Kim and Cho (2013) for further description of the database. As discussed by Leschine et al. (2015), global-scale scenarios are subject to more unknowns and may be considered less appealing. To strengthen our finding, we provide thorough sensitivity analysis in the later part.

9. The total coastline of 14,000 km includes islands of various sizes. If we exclude islands from our analysis, the protection rate becomes higher.

10. This figure is calculated as 1—residual damage/total damage. That a relatively small protection rate of 21% can produce a large reduction in damage of 93% is attributable to a highly convex marginal benefit curve shown in Figure 1 (A). In the figure, residual damage is the area under the marginal benefit curve between 0 and 20%, and total damage is the area under the marginal benefit curve between 0 and 100%.

11. The Supplements to this paper contain mathematics behind this statement.

12. Note however that to specify a non-uniform distribution, one needs to collect extra data, which can be quite costly in an international study.

13. Note that the social welfare defined here is not identical to the net benefit discussed in Sections 2 and 3. Using the notation of Sections 2 and 3, the social welfare is , whereas the net benefit is . Given a scenario, maximizing the social welfare is equivalent to maximizing the net benefit. However, when we consider multiple scenarios, these two are not equivalent since damage and cost are scenario dependent.

14. Differential adjustments of different components do not affect the solution. Thus, we adjust three damage components with a single adjustment factor.

15. The values of and ρ are different for different years. We adjust the parameters of different years at the same rate.

16. The Supplements to this paper contain a dynamic extension of our cost-benefit analysis, which allows us to explore the consequence of the value of delaying the protective measure.