Modeling Regional Economic Resilience to Disasters: A Computable General Equilibrium Analysis of Water Service Disruptions*

TLDR

Natural and manmade disasters can severely impact regional economies, but business and market resilience often mitigates these effects, and computable general equilibrium models offer a promising yet historically biased tool for analyzing such impacts. This study extends CGE analysis of critical input disruptions by defining business and regional resilience, linking production parameters to emergency adaptations, and developing recalibration algorithms to decompose equilibrium responses. The authors operationalize resilience, map production function parameters to producer adaptations, create algorithms for recalibrating functions from data, and decompose partial and general equilibrium effects. A case study of Portland’s water system disruption after an earthquake demonstrates the model’s ability to quantify sectoral and regional economic impacts. The abstract outlines the study’s objectives, methods, and findings.

Abstract

Abstract. Recent natural and manmade disasters have had significant regional economic impacts. These effects have been muted, however, by the resilience of individual businesses and of regional markets, which refers to the inherent ability and adaptive responses that enable firms and regions to avoid potential losses. Computable general equilibrium (CGE) analysis is a promising approach to disaster impact analysis because it is able to model the behavioral response to input shortages and changing market conditions. However, without further refinement, CGE models, as well as nearly all other economic models, reflect only “business-as-usual” conditions, when they are based on historical data. This paper advances the CGE analysis of major supply disruptions of critical inputs by: specifying operational definitions of individual business and regional macroeconomic resilience, linking production function parameters to various types of producer adaptations in emergencies, developing algorithms for recalibrating production functions to empirical or simulation data, and decomposing partial and general equilibrium responses. We illustrate some of these contributions in a case study of the sectoral and regional economic impacts of a disruption to the Portland Metropolitan Water System in the aftermath of a major earthquake.