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Assessment of the Regional Economic Impacts of Catastrophic Events: CGE analysis of resource loss and behavioral effects of a RDD attack scenario

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  • J.A. Giesecke
  • W.J. Burns
  • A. Barrett
  • E. Bayrak
  • A. Rose
  • M. Suher

Abstract

Using a large-scale CGE model, we investigate the short-run and long-run regional economic consequences of a catastrophic event - attack via radiological dispersal device (RDD) - centered on the downtown Los Angeles area. We distinguish two main routes via which such a catastrophic event might affect regional economic activity: (i) reduction in effective resource supply (the resource loss effect) and (ii) shifts in the perceptions of economic agents (the behavioral effect). Broadly, the resource loss effect relates to the physical destructiveness of the event, while the behavioral effect relates to changes in fear and risk perception on the part of firms, households and government. Both affect the size of the regional economy. RDD detonation (Dirty Bomb) causes little direct capital damage and few casualties, but generates substantial short-run resource loss via business interruption. Changes in fear and risk perception increase the supply cost of resources to the affected region, while simultaneously reducing demand for goods produced in the region. In both the short-run and long-run in the affected region, households may require higher wages to work, investors may require higher returns to invest, and economic agents may switch their preferences away from goods produced. We show that because perception effects may have lingering long-term deleterious impacts on both the supply-cost of resources to a region and willingness to pay for regional output, they have the potential to generate changes in real regional GDP that are much greater than those generated by the resource loss effect. Implications for policy that might mitigate these effects are discussed.

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Bibliographic Info

Paper provided by Victoria University, Centre of Policy Studies/IMPACT Centre in its series Centre of Policy Studies/IMPACT Centre Working Papers with number g-194.

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Date of creation: Jan 2010
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Publication status: Published in Risk Analysis, Vol. 32(4), April 2012, pp. 583-600.
Handle: RePEc:cop:wpaper:g-194

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Keywords: RDD; economic impact; terrorism; risk perception;

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  1. Dixon, Peter B. & Parmenter, B.R., 1996. "Computable general equilibrium modelling for policy analysis and forecasting," Handbook of Computational Economics, in: H. M. Amman & D. A. Kendrick & J. Rust (ed.), Handbook of Computational Economics, edition 1, volume 1, chapter 1, pages 3-85 Elsevier.
  2. James Andrew Giesecke, 2011. "Development of a Large-scale Single US Region CGE Model using IMPLAN Data: A Los Angeles County Example with a Productivity Shock Application," Spatial Economic Analysis, Taylor & Francis Journals, vol. 6(3), pages 331-350, April.
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Cited by:
  1. George Verikios & Maura Sullivan & Pane Stojanovski & James Giesecke & Gordon Woo, 2011. "The Global Economic Effects of Pandemic Influenza," Centre of Policy Studies/IMPACT Centre Working Papers g-224, Victoria University, Centre of Policy Studies/IMPACT Centre.

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