Modeling Regional Economic Resilience to Disasters: A Computable General Equilibrium Analysis of Water Service Disruptions*

Abstract

Abstract. Recent natural and manmade disasters have had significant regional economic impacts. These effects have been muted, however, by the resilience of individual businesses and of regional markets, which refers to the inherent ability and adaptive responses that enable firms and regions to avoid potential losses. Computable general equilibrium (CGE) analysis is a promising approach to disaster impact analysis because it is able to model the behavioral response to input shortages and changing market conditions. However, without further refinement, CGE models, as well as nearly all other economic models, reflect only “business-as-usual” conditions, when they are based on historical data. This paper advances the CGE analysis of major supply disruptions of critical inputs by: specifying operational definitions of individual business and regional macroeconomic resilience, linking production function parameters to various types of producer adaptations in emergencies, developing algorithms for recalibrating production functions to empirical or simulation data, and decomposing partial and general equilibrium responses. We illustrate some of these contributions in a case study of the sectoral and regional economic impacts of a disruption to the Portland Metropolitan Water System in the aftermath of a major earthquake.