Modeling the Demand Reduction Input‐Output (I‐O) Inoperability Due to Terrorism of Interconnected Infrastructures*

Abstract

Interdependency analysis in the context of this article is a process of assessing and managing risks inherent in a system of interconnected entities (e.g., infrastructures or industry sectors). Invoking the principles of input‐output (I‐O) and decomposition analysis, the article offers a framework for describing how terrorism‐induced perturbations can propagate due to interconnectedness. Data published by the Bureau of Economic Analysis Division of the U.S. Department of Commerce is utilized to present applications to serve as test beds for the proposed framework. Specifically, a case study estimating the economic impact of airline demand perturbations to national‐level U.S. sectors is made possible using I‐O matrices. A ranking of the affected sectors according to their vulnerability to perturbations originating from a primary sector (e.g., air transportation) can serve as important input to risk management. For example, limited resources can be prioritized for the “top‐n” sectors that are perceived to suffer the greatest economic losses due to terrorism. In addition, regional decomposition via location quotients enables the analysis of local‐level terrorism events. The Regional I‐O Multiplier System II (RIMS II) Division of the U.S. Department of Commerce is the agency responsible for releasing the regional multipliers for various geographical resolutions (economic areas, states, and counties). A regional‐level case study demonstrates a process of estimating the economic impact of transportation‐related scenarios on industry sectors within Economic Area 010 (the New York metropolitan region and vicinities).