The Challenge of Estimating the Impact of Disasters: Many Approaches, Many Limitations and a Compromise

The recent upward trend in the direct costs of natural disasters is a reflection of both an increase in asset densities and the concentration of economic activities in hazard-prone areas. Although losses in physical infrastructure and lifelines are usually spatially concentrated in a few areas, their effects tend to spread geographically and temporally due to the more spatially disperse nature of production chains and the timing and length of disruptions. Since the 1980s, several techniques have been proposed to model higher-order economic impacts of disruptive events, most of which are based on the input-output framework. However, their contributions are fragmented in different models, and, still missing, is a more comprehensive accounting of production scheduling, seasonality in industrial linkages and demographics dynamics post-event. In this chapter, the Generalized Dynamic Input-Output (GDIO) framework is presented and its theoretical basis derived. It integrates previous contributions in terms of intertemporal dynamics, explicit intratemporal modeling of production and market clearing, inventory depletion/formation and expectation’s adjustment. Moreover, we add to the literature by introducing induced effects via a demo-economic extension to study the impact of displacement and unemployment post-disaster, the impact of disruption timing via seasonal input-output tables, and production chronology via the sequential interindustry model.