Economic Impacts of the ShakeOut Scenario

Abstract

For the ShakeOut Earthquake Scenario, we estimate $68 billion in direct and indirect business interruption (BI) and $11 billion in related costs in addition to the $113 billion in property damage in an eight-county Southern California region. The modeled conduits of shock to the economy are property damage and lifeline service outages that affect the economy's ability to produce. Property damage from fire is 50% greater than property damage from shaking because fire is more devastating. BI from water service disruption and fire each represent around one-third of total BI losses because of the long duration of service outage or long restoration and reconstruction periods. Total BI losses are 4.3% of annual gross output in the affected region, an impact far larger than most conventional economic recessions. These losses are still much lower than they potentially could be due to the resilience of the economy.

A reduced-form rapid economic consequence estimating model: Application to property damage from U.S. earthquakes

“…These models have proved versatile and accurate in their estimation of the total economic impacts of a range of hazards, including both terrorist attacks and natural disasters. Specific applications include the economic consequences of 9/11 (Rose and Blomberg 2010), a radiological dispersion device ("dirty bomb") attack (Giesecke et al 2012), an H1N1 epidemic (Dixon et al 2010), a major earthquake (Rose, Wei, and Wein 2011), and a severe winter storm and ensuing flooding (Sue Wing, Rose, and Wein 2010). Unfortunately, these models are time-consuming to construct and operate, and cannot provide quick response results unless a model for a specific region or country is already in place.…”

Measuring Community Resilience and Recovery: A Content Analysis of Indicators

“…In fact, only the interdisciplinary articles cited recovery planning with any frequency, and most significantly, none of the practitioner articles cited this. However several articles on the outcomes of the Great Southern California ShakeOut indicated that planners advocated for more pre-event planning for postdisaster recovery (Rose 2011). In addition, several authors have documented the need for more recovery planning (Smith andWenger 2006, Berke andCampanella 2006) and the FEMA LTCR report highlights the need for both recovery planning and clear goals for the future during the recovery process (FEMA 2009).…”

Improving Catastrophe Modeling for Business Interruption Insurance Needs

“…Lifeline services may witness price increases, or, where subject to price regulation, may require rationing. Other key goods affecting the pace of recovery may be influenced, especially construction, in terms of a demand surge phenomenon …”

“…Estimates of property losses from Hurricane Katrina are nearly $100 billion, but BI losses now exceed $100 billion and counting because these losses just start at the time the disaster strikes and continue to rise until the regional economy has recovered to its predisaster trajectory or to a “new normal.” Total property damage (insured and uninsured) from the September 11, 2001 terrorist attacks on the World Trade Center is estimated at about $25 billion, but the consensus estimates of total BI losses are between $40 and $100 billion . Estimates of property damage from a hypothetical 8.2 Southern San Andreas Fault earthquake are $100 billion, with the associated BI losses at $67 billion . Typically, a larger proportion of property damage losses are insured than are the BI losses, but the market potential for the latter is enormous.…”