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Assessing the Consequences of Natural Disasters on Production Networks: A Disaggregated Approach

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  • Stéphane Hallegatte

    (CIRED)

  • Fanny Henriet

    (Centre International de Recherche sur l’Environnement et le Développement)

Abstract

This article proposes a framework to investigate the consequences of natural disasters. This framework is based on the disaggregation of Input-Output tables at the business level, through the representation of the regional economy as a network of production units. This framework accounts for (i) limits in business production capacity; (ii) forward propagations through input shortages; and (iii) backward propagations through decreases in demand. Adaptive behaviors are included, with the possibility for businesses to replace failed suppliers, entailing changes in the network structure. This framework suggests that disaster costs depend on the heterogeneity of losses and on the structure of the affected economic network. The model reproduces economic collapse, suggesting that it may help understand the difference between limited-consequence disasters and disasters leading to systemic failure.

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Bibliographic Info

Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2008.100.

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Date of creation: Dec 2008
Date of revision:
Handle: RePEc:fem:femwpa:2008.100

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Keywords: Natural disasters; Economic impacts; Economic Network;

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References

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  1. Cowan,Robin & Jonard,Nicolas, 1999. "Network Structure and the Diffusion of Knowledge," Research Memorandum 026, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
  2. Weisbuch, Gérard & Battiston, Stefano, 2007. "From production networks to geographical economics," Journal of Economic Behavior & Organization, Elsevier, vol. 64(3-4), pages 448-469.
  3. Hallegatte, Stephane & Hourcade, Jean-Charles & Dumas, Patrice, 2007. "Why economic dynamics matter in assessing climate change damages: Illustration on extreme events," Ecological Economics, Elsevier, vol. 62(2), pages 330-340, April.
  4. Vasco Carvalho, 2007. "Aggregate fluctuations and the network structure of intersectoral trade," Economics Working Papers 1206, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 2010.
  5. Gatti, Domenico Delli & Guilmi, Corrado Di & Gaffeo, Edoardo & Giulioni, Gianfranco & Gallegati, Mauro & Palestrini, Antonio, 2005. "A new approach to business fluctuations: heterogeneous interacting agents, scaling laws and financial fragility," Journal of Economic Behavior & Organization, Elsevier, vol. 56(4), pages 489-512, April.
  6. Thomas, Douglas J. & Griffin, Paul M., 1996. "Coordinated supply chain management," European Journal of Operational Research, Elsevier, vol. 94(1), pages 1-15, October.
  7. Hallegatte, Stéphane & Ghil, Michael, 2008. "Natural disasters impacting a macroeconomic model with endogenous dynamics," Ecological Economics, Elsevier, vol. 68(1-2), pages 582-592, December.
  8. Michael Horvath, 1998. "Cyclicality and Sectoral Linkages: Aggregate Fluctuations from Independent Sectoral Shocks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(4), pages 781-808, October.
  9. Corso, G. & Lucena, L.S. & Thomé, Z.D., 2003. "The small-world of economy: a speculative proposal," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 324(1), pages 430-436.
  10. Battiston, Stefano & Delli Gatti, Domenico & Gallegati, Mauro & Greenwald, Bruce & Stiglitz, Joseph E., 2007. "Credit chains and bankruptcy propagation in production networks," Journal of Economic Dynamics and Control, Elsevier, vol. 31(6), pages 2061-2084, June.
  11. Adam Rose & Shu-Yi Liao, 2005. "Modeling Regional Economic Resilience to Disasters: A Computable General Equilibrium Analysis of Water Service Disruptions," Journal of Regional Science, Wiley Blackwell, vol. 45(1), pages 75-112.
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Cited by:
  1. Stéphane Hallegatte & Fanny Henriet & Jan Corfee-Morlot, 2011. "The economics of climate change impacts and policy benefits at city scale: a conceptual framework," Climatic Change, Springer, vol. 104(1), pages 51-87, January.
  2. B. Coluzzi & M. Ghil & S. Hallegatte & G. Weisbuch, 2010. "Boolean delay equations on networks: An application to economic damage propagation," Papers 1003.0793, arXiv.org.

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