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Mitigation and Resilience Tradeoffs for Electricity Outages

Author

Listed:
  • Jonathan Eyer

    (University of Southern California (USC))

  • Adam Rose

    (University of Southern California (USC))

Abstract

Large-scale electricity outages have the potential to result in substantial business interruption losses. These losses can be reduced through a number of tactics within the broader strategies of mitigation and resilience. This paper presents a methodology for analyzing the tradeoffs between mitigation and three categories of resilience. We derive optimality conditions for various combinations of strategies for a Cobb-Douglas damage function and then explore implications of a less restrictive Constant Elasticity of Substitution damage function. We also calibrate the model and perform Monte Carlo simulations to test the sensitivity of the results with respect to changes in major parameters. Simulation results highlight the possibility that substitution away from mitigation towards resilience may lower total expected costs from large-scale outages for a given level of risk reduction expenditure when the marginal benefit of resilience is high relative to the expected marginal benefit of mitigation.

Suggested Citation

  • Jonathan Eyer & Adam Rose, 2019. "Mitigation and Resilience Tradeoffs for Electricity Outages," Economics of Disasters and Climate Change, Springer, vol. 3(1), pages 61-77, April.
    • Handle: RePEc:spr:ediscc:v:3:y:2019:i:1:d:10.1007_s41885-018-0034-5
    DOI: 10.1007/s41885-018-0034-5
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    References listed on IDEAS

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    1. Adam Rose & Gbadebo Oladosu & Derek Salvino, 2005. "Economic Impacts of Electricity Outages in Los Angeles," Topics in Regulatory Economics and Policy, in: Michel A. Crew & Michael A. Crew & Menahem Spiegel (ed.), Obtaining the Best from Regulation and Competition, chapter 0, pages 179-210, Springer.
    2. Greenberg, Michael & Mantell, Nancy & Lahr, Michael & Felder, Frank & Zimmerman, Rae, 2007. "Short and intermediate economic impacts of a terrorist-initiated loss of electric power: Case study of New Jersey," Energy Policy, Elsevier, vol. 35(1), pages 722-733, January.
    3. 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, February.
    4. Michael Beenstock & Ephraim Goldin & Yoel Haitovsky, 1997. "The Cost of Power Outages in the Business and Public Sectors in Israel: Revealed Preference vs. Subjective Valuation," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 39-61.
    5. Matsukawa, Isamu & Fujii, Yoshifumi, 1994. "Customer Preferences for Reliable Power Supply: Using Data on Actual Choices of Back-Up Equipment," The Review of Economics and Statistics, MIT Press, vol. 76(3), pages 434-446, August.
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