Economic Issues in Risk Analysis: Do Strategic Analysis

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Economic Issues in Risk Analysis Do Strategic
Analysis Planning

• Michael R. Greenberg,
• Bloustein School, November 2008

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Context

• Proponent of Risk Analysis
• Risk assessment
• Risk management, which includes economic analyses

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Two economic issues that need to be addressed

• (1) Strategic assessment of potential disasters
• (2) Lifecycle cost assessment ( briefly summarize)

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Strategic assessment of disasters

• U.S. does not systematically analyze
  vulnerabilities and economic implications of
  disasters
• failed to protect engineered systems
• inadequate land use-planning or design to reduce
  risk

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• Inadequate planning for evacuation or relocation
• Failure to understand implications of different
  levels and staging of restoration
• Failure to provide resources that build
  resiliency into systems or mitigate against
  economic consequences

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Attributes for Economic Preparedness

• Measure costs benefits (Direct, indirect and
  induced impacts)
• Geographical scale (Local, regional, multi
  county, state, national, international)
• Temporal (aftermath, intermediate, long-term)

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Attributes (2)

• Ability to measure policy consequences
  (investments in mitigative measures upgrading
  bridges, dams, electric power substations)
• Investments in resiliency (education, alternative
  production methods, use alternative resources)
• Impact on disadvantaged (poor, second language,
  immobile)

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Tools

• Input output
• Econometric
• Computable general equilibrium
• Regional economic models (REMI)

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Key Data Needs

• Estimate of resiliency
• spatial unevenness of vulnerability and
  responsiveness
• insurance

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Be proactive with our existing tools

• Local scale use Hazus to produce estimates of
  worst disasters for 5 years
• State use CGE or econometric model to prepare
  plausible state estimates
• Feds use REMI to develop national estimates
• Prepare briefings for Congress and Executive
  branches. Stop being passive as if we have no
  capacity for strategic planning.

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References

• M. Greenberg, M. Lahr, and N. Mantell.
  Understanding the economic costs and benefits of
  catastrophes and their aftermath a review and
  suggestions for the US federal government. Risk
  Analysis. 27 (1), 2007, 83-96.

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• M. Greenberg, H. Mayer, and D. Lewis, Life-cycle
  cost in a highly uncertain economic environment
  the case of managing the U.S. Department of
  Energys nuclear waste legacy,
• Federal Facilities Environmental Journal,
  Spring, 2004, 67-82.