Optimal regulation of the construction of reliable sea defenses

Oscar Nieto-Cerezo, Jan Wenzelburger, Edoardo Patelli, Michael Beer

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This article studies incentives to share risk as a risk management tool to address issues of interdependency among risk assessment, risk perception, and risk management in large civil engineering projects. The decision problem of an operator in charge of constructing reliable sea defenses is studied, and it is shown that operators have no incentive to reduce the likelihood of rare but extreme floods because their liability for damage costs cannot exceed the value of their private assets. An evaluation is made of the level of liability that induces cost-effective safety measures to reduce the probability of extreme events without bankrupting the operator, and its impact on the welfare of society is studied. It turns out that society will be better protected at a significantly lower cost when tacitly retaining the residual risk of extreme damage costs. The findings offer an explanation as to why stakeholders tend to ignore the potential costly consequences entailed by the failure of civil engineering projects. Although these catastrophic failures are rare, this paper contends that society, as a whole, should bear the residual risk of such events.

Original languageEnglish
Article number04020023
Number of pages12
JournalASCE-ASME Journal of Risk and Uncertainty in Engineering Systems, Part A: Civil Engineering
Issue number2
Early online date8 Apr 2020
Publication statusPublished - 30 Jun 2020


  • risk management
  • sea defences
  • cost-effective safety measures


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