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Modeling a major source of economic resilience to disasters: recapturing lost production

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  • JiYoung Park
  • Joongkoo Cho
  • Adam Rose

Abstract

Terrorist attacks and natural disasters have potentially severe economic consequences in terms of property damage and business interruption. However, experience from the September 11 World Trade Center attack and other disasters indicates that the economy has a great deal of resilience. This refers to the ability to dampen the maximum potential economic output (business interruption) loss. One of the most prominent sources of resilience is the ability of businesses to reschedule, or recapture, lost production after the event. Although there have been applications of a fixed parameter recapture factor for each of several aggregated sectors of the economy, there has been little formal analysis of this resilience action. This study offers a theoretic framework for analyzing production rescheduling. It distinguishes the major conditions influencing two aspects that have previously been neglected: (1) the maximum time span over which the rescheduling can take place and (2) the likely decline of the maximum recapture as the business interruption increases. We divide the relevant time path into two periods after recovery. One is a function of a recaptured output path after recovery to the status of normal production. The other is a function for the maximum recaptured production, based on the recaptured output path. The recaptured output path function is assumed to follow a normal distribution function, and hence, total recaptured output follows the cumulative normal distribution function over time after productive capacity is restored. Also, we develop a new cumulative normal distribution function for interruption time duration, which is symmetric with respect to the output axis. This recapture function has unknown parameters. Empirical data on the recaptured amounts following an actual disaster can be used to estimate the parameters of this function using simulation methods. Copyright Springer Science+Business Media B.V. 2011

Suggested Citation

  • JiYoung Park & Joongkoo Cho & Adam Rose, 2011. "Modeling a major source of economic resilience to disasters: recapturing lost production," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 58(1), pages 163-182, July.
    • Handle: RePEc:spr:nathaz:v:58:y:2011:i:1:p:163-182
    DOI: 10.1007/s11069-010-9656-9
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    References listed on IDEAS

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    1. Rose Adam Z. & Oladosu Gbadebo & Lee Bumsoo & Asay Garrett Beeler, 2009. "The Economic Impacts of the September 11 Terrorist Attacks: A Computable General Equilibrium Analysis," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 15(2), pages 217-244, July.
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    Cited by:

    1. Saurabh Prabhu & Mohammad Javanbarg & Marc Lehmann & Sez Atamturktur, 2019. "Multi-peril risk assessment for business downtime of industrial facilities," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 97(3), pages 1327-1356, July.
    2. Adam Rose, 2022. "Behavioral Economic Consequences of Disasters: A Basis for Inclusion in Benefit–Cost Analysis," Economics of Disasters and Climate Change, Springer, vol. 6(2), pages 213-233, July.
    3. Dormady, Noah C. & Rose, Adam & Roa-Henriquez, Alfredo & Morin, C. Blain, 2022. "The cost-effectiveness of economic resilience," International Journal of Production Economics, Elsevier, vol. 244(C).
    4. Vicki Marion Bier, 2017. "Understanding and Mitigating the Impacts of Massive Relocations Due to Disasters," Economics of Disasters and Climate Change, Springer, vol. 1(2), pages 179-202, July.
    5. Hyun Kim & David Marcouiller, 2015. "Considering disaster vulnerability and resiliency: the case of hurricane effects on tourism-based economies," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 54(3), pages 945-971, May.
    6. Ying Wang & Hao Chen & Juan Li, 2012. "Factors affecting earthquake recovery: the Yao’an earthquake of China," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 64(1), pages 37-53, October.
    7. Yingqi Zhu & Ying Wang & Tianxue Liu & Qi Sui, 2018. "Assessing macroeconomic recovery after a natural hazard based on ARIMA—a case study of the 2008 Wenchuan earthquake in China," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 91(3), pages 1025-1038, April.
    8. Noah C. Dormady & Robert T. Greenbaum & Kim A. Young, 2021. "An experimental investigation of resilience decision making in repeated disasters," Environment Systems and Decisions, Springer, vol. 41(4), pages 556-576, December.

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