MismatchMismatch: Risk assessment and cybersecurity

Published 28 November 2005

Last week we pointed our readers’ attention to a new boom by Richard Posner, titled Catastrophe: Risk and Response, in which the University of Chicago professor and former federal judge both advocates the use of cost-benefit analysis in homeland security decision making and highlights the shortcoming of the approach. In an article which summarizes many of the arguments of the book, Posner writes that even a superficial program of threat assessment would have quickly identified New Orleans as a highly vulnerable, high-value target for nature or for terrorism. We could also rely on the Weather Bureau for timely information about the natural threat. The next question, then, would be whether to “harden” the target by strengthening the levees or taking other measures to reduce the likelihood of disastrous flooding. A study in 1998 estimated that New Orleans could be made safer against flooding caused by powerful hurricanes, at a cost of $14 billion, by restoring and sustaining Louisiana’s coastal ecosystem. The Army Corps of Engineers had estimated an annual probability of almost one in three hundred of a disastrous flood, which mounts up to a near 9 percent probability over a thirty-year period. This is a high probability, but maybe not high enough to justify, in strict cost-benefit terms, a $14 billion expenditure which would have made New Orleans safer but not completely safe. “Suppose the damage inflicted by such a flood were estimated at $200 billion; then, as a first approximation, preventive measures that reduced the probability of the flood from, say, 9 percent to 3 percent would not be cost-justified if they cost more than $12 billion (6 percent of $200 billion — the expected benefit of the investment),” Posner writes.

The fact that it was not cost-effective to invest $14 billion in hardening the levees does not mean that other protective measures should not have been taken. “Once it became clear that the $14 billion was not going to be spent — and in any event it would have been spent over thirty years, during which time the city would remain highly vulnerable to flooding — the emphasis could be expected to shift to the fourth type