Modeling the Roles of Heterogeneity, Substitution, and Inventories in the Assessment of Natural Disaster Economic Costs
Based on an IO structure, the ARIO-inventory model simulates the economic consequences and responses to a natural disaster. It represents explicitly production bottlenecks, models a flexibility in production capacity in case of scarcity, and introd...
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2012
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| Online Access: | http://documents.worldbank.org/curated/en/2012/04/16237455/modeling-roles-heterogeneity-substitution-inventories-assessment-natural-disaster-economic-costs http://hdl.handle.net/10986/6050 |
| Summary: | Based on an IO structure, the
ARIO-inventory model simulates the economic consequences and
responses to a natural disaster. It represents explicitly
production bottlenecks, models a flexibility in production
capacity in case of scarcity, and introduces inventories as
an additional flexibility in the production system.
Moreover, it takes into account the heterogeneity in goods
and services within sectors, and the consequences on
production bottlenecks and substitution possibilities. The
model is applied to the landfall of hurricane Katrina in
Louisiana. Sensitivity analyses show that results are
extremely sensitive to several uncertain model parameters.
In particular, accounting for heterogeneity within sectors
has a large negative influence on production bottlenecks,
and thus increases total economic losses from natural
disasters and other supply-side shocks. This paper shows
that current models disregard important mechanisms and
proposes an approach to take them into account. |
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