ABSTRACT
Environmental hazards can have serious economic consequences. In formal terms, economics focuses on the behaviour and interactions of economic agents and on how economies work. Using flooding as a principal example, this chapter describes these economic ideas and the consequences for environmental hazard mitigation. The economic impacts, when quantified, can be used to gauge the level of sensible response to the specific environmental hazards concerned. We should seek market prices in our assessment of environmental hazards and their impacts, because such prices generally reflect the true value. A fundamental role of economics here is to inform decision-making about responses, leading to reduced risk. Many techniques have been developed for this purpose; the most useful ones, as far as environmental hazards are concerned, are benefit-cost analysis, multi-criteria analysis, and cost-effectiveness analysis. Important though it is, however, economic analysis is by no means the last word. Social issues regarding the distribution of environmental hazards and risk reduction are of increasing concern across the world, as are the environmental effects of these hazards and the damage that risk mitigation can cause if mistakes are made in its implementation. A holistic approach is necessary, with economics joining with other disciplines to analyse policy and promote risk reduction.
