Journal
GENEVA PAPERS ON RISK AND INSURANCE-ISSUES AND PRACTICE
Volume 33, Issue 2, Pages 323-336Publisher
PALGRAVE MACMILLAN LTD
DOI: 10.1057/gpp.2008.5
Keywords
hydropower generation; flood risk; licensing; strict liability; negligence; insurance
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Regulation of waters to generate electricity contributes to two different, but related flood risks. A dam may break resulting in a catastrophic accident. High flow floods are less costly and occur when there are large amounts of rain falls in combination with filled reservoirs. Here, the Swedish approach to flood risk management is studied from a social welfare perspective. Risk of dam owner insolvency implies that strict liability should be combined with regulation to prevent dam breaks. Negligence is argued to be the appropriate liability rule for high flow floods. Negligence assures that dam owners do not avoid liability by raising water levels in their reservoirs, and thereby increasing the risk of dam breaks. High flow floods are inevitable. The best strategy is to reduce the ensuing costs by appropriately incorporating flood risks in land use regulation, and by pricing flood risk in available property insurance.
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