A reduced-form rapid economic consequence estimating model: Application to property damage from U.S. earthquakes

Abstract

Modeling the economic consequences of disasters has reached a high level of maturity and accuracy in recent years. Methods for providing reasonably accurate rapid estimates of economic losses, however, are still limited. This article presents the case for “reduced-form” models for rapid economic consequence estimation for disasters, and specifies and statistically estimates a regression equation for property damage from significant U.S. earthquakes. Explanatory variables are of two categories: (1) hazard-related variables pertaining to earthquake characteristics; and (2) exposure-related variables pertaining to socioeconomic conditions. Comparisons to other available earthquake damage estimates indicate that our Reduced-Form Model yields reasonably good results, including several statistically significant variables that are consistent with a priori hypotheses. The article concludes with a discussion of how the research can be enhanced through the collection of data on additional variables, and of the potential for the extension of the reduced-form modeling approach to other hazard types.