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Modeling the roles of heterogeneity, substitution, and inventories in the assessment of natural disaster economic costs

  • Hallegatte, Stephane

Based on an IO structure, the ARIO-inventory model simulates the economic consequences and responses to a natural disaster. It represents explicitly production bottlenecks, models a flexibility in production capacity in case of scarcity, and introduces inventories as an additional flexibility in the production system. Moreover, it takes into account the heterogeneity in goods and services within sectors, and the consequences on production bottlenecks and substitution possibilities. The model is applied to the landfall of hurricane Katrina in Louisiana. Sensitivity analyses show that results are extremely sensitive to several uncertain model parameters. In particular, accounting for heterogeneity within sectors has a large negative influence on production bottlenecks, and thus increases total economic losses from natural disasters and other supply-side shocks. This paper shows that current models disregard important mechanisms and proposes an approach to take them into account.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6047.

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Date of creation: 01 Apr 2012
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Handle: RePEc:wbk:wbrwps:6047
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  1. Sungbin Cho & Peter Gordon & James E. Moore II & Harry W. Richardson & Masanobu Shinozuka & Stephanie Chang, 2001. "Integrating Transportation Network and Regional Economic Models to Estimate the Costs of a Large Urban Earthquake," Journal of Regional Science, Wiley Blackwell, vol. 41(1), pages 39-65.
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  3. Stéphane Hallegatte & Nicola Patmore & Olivier Mestre & Patrice Dumas & Jan Corfee-Morlot & Celine Herweijer & Robert Muir-Wood, 2008. "Assessing Climate Change Impacts, Sea Level Rise and Storm Surge Risk in Port Cities: A Case Study on Copenhagen," OECD Environment Working Papers 3, OECD Publishing.
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  8. Nicola Ranger & Stéphane Hallegatte & Sumana Bhattacharya & Murthy Bachu & Satya Priya & K. Dhore & Farhat Rafique & P. Mathur & Nicolas Naville & Fanny Henriet & Celine Herweijer & Sanjib Pohit & Jan, 2011. "An assessment of the potential impact of climate change on flood risk in Mumbai," Climatic Change, Springer, vol. 104(1), pages 139-167, January.
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  13. Loayza, Norman & Olaberria, Eduardo & Rigolini, Jamele & Christiaensen, Luc, 2009. "Natural disasters and growth - going beyond the averages," Policy Research Working Paper Series 4980, The World Bank.
  14. 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.
  15. 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.
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