The economic costs of natural disasters, terrorist attacks, and other calamities: An analysis of economic models that quantify the losses caused by disruptions

Abstract

Over the past decade, numerous studies have estimated the economic impacts of a variety of disruptions. Most of these studies are based on macroeconomic models that quantify the direct and indirect economic losses from a disruption. Direct economic losses occur due to damaged facilities or when consumers change their purchasing behavior because of the disruption. Indirect economic losses occur when directly impacted businesses consequently reduce their orders to their suppliers. Indirect economic losses are often larger than direct economic losses. This paper compiles the results from these economic models in order to compare the costs of different disruptions and help decision makers prioritize among disruptions. We compare the direct and indirect economic losses from a variety of disruptions, including earthquakes, hurricanes, terrorist attacks, pandemic diseases, and port closures. Some studies model hypothetical scenarios, but other studies quantify the economic losses from historical events such as the September 11 attacks and the 2011 Japanese tsunami. This paper provides a useful benchmark to understand the consequences from disruptions and highlight areas that public officials could address in planning for future disruptions.