Alexia Fürnkranz-Prskawetz

Optimal investment and location decisions of a firm in a flood risk area using impulse control theory

Flooding events can affect businesses close to rivers, lakes or coasts. This paper provides an economic partial equilibrium model, which helps to understand the optimal location choice for a firm in flood risk areas and its investment strategies. How often, when and how much are firms willing to invest in flood risk protection measures? We apply Impulse Control Theory and develop a continuation algorithm to solve the model numerically. We find that, the higher the flood risk and the more the firm values the future, i.e. the more sustainable the firm plans, the more the firm will invest in flood defense. Investments in productive capital follow a similar path. Hence, planning in a sustainable way leads to economic growth. Sociohydrological feedbacks are crucial for the location choice of the firm, whereas different economic settings have an impact on investment strategies. If flood defense is already present, e.g. built up by the government, firms move closer to the water and invest less in flood defense, which allows firms to generate higher expected profits. Firms with a large initial productive capital surprisingly try not to keep their market advantage, but rather reduce flood risk by reducing exposed productive capital.

Population Dynamics: Mathematic Models of Population, Development, and Natural Resources

Whereas interactions of population and natural resource growth have generally been modeled using large-scale numerical simulation studies, we review small-scale models that permit partially analytical results and can capture some of the salient features observed in history. This article refers only to models that concentrate on renewable resources since these are the most interesting and least understood as regards changes in population structures and dynamics. It starts by reviewing models of population and resource dynamics that refer to subsistence economies. Within this class of models it is possible to investigate how the equilibrium between the resource and population stock changes, dependent on the functional relations that govern the dynamics of population and resources. But as societies become less bound to the land, more urbanized, and more technological, resources might still be at risk, albeit no longer from positive population growth but rather from the environmental costs of consumption and production. To capture the impact of population growth on the environment, demographic impact models have been developed aimed at decomposing the effect on the environment from population on the one hand and that from consumption and technology on the other. The article concludes our review with a look at models of environmental influences on population dynamics.