Port investments to address diversified risks under risk-sensitive behavior: Prevention or adaptation?

Abstract

The hub location and key socioeconomic functions of seaports in the global supply chain make them vulnerable to the dual challenges of congestion and climate change. Appropriate scale and timing of prevention and adaptation can be targeted to reduce the probability of congestion and potential damage from climate change-related risks. We propose a two-period model to explore the optimal scale and timing of joint prevention and adaptation for port authorities (PAs) with risk-averse behavior. Our analysis shows that private PAs are better off making preventive efforts early and adaptive efforts late, while publicly owned PAs are better off making adaptive efforts early. Resource allocation for prevention and adaptation is strongly influenced by risk-sensitive behavior. As budgets increase, less risk-averse PAs prioritize congestion prevention followed by climate change adaptation, while more risk-averse PAs prioritize climate change adaptation followed by congestion prevention as budgets increase. The findings in this study provide significant managerial insights for decision-makers and policy-makers in ports and governments.