Estimating Expected Annual Damage for Levee Retrofits

The U.S. Army Corps of Engineers (USACE) has instituted a new analysis methodology for estimating the expected annual damage (EAD) and resulting economic benefits accruing to proposed flood damage-reduction projects. Although the methodology is new, it still, in effect, uses expected probability to estimate the frequency of flooding and EAD. The National Research Council (NRC) in a review of USACE's study of the American River levees stated that the use of expected probability results in significantly biased estimates of EAD. An alternative damage model to that proposed by NRC is used to show that expected probability leads to an unbiased estimate of EAD. The damage model proposed requires that an unbiased estimate of damage results when applied to many projects. A simulation study demonstrates that EAD estimated with expected probability is unbiased, whereas the NRC's recommended estimator is biased.