Indirect Losses from Natural Disasters: Measurement and Myth

Abstract

Early studies of indirect loss framed the problem narrowly and focused on secondary ripple effects triggered by supply bottlenecks, i. e., the shortages that cause undamaged producers and service providers to shut down (Cochrane, 1974). Since then, the concept has been refined and the analytical tools for estimating such losses have advanced markedly (RMS, 1996; Rose et al., 1995). Yet despite such advancements, indirect loss remains a somewhat amorphous concept. In contrast to what was once believed, it does not readily yield simple rules of thumb, e. g., “indirect loss is equivalent in magnitude to direct loss.” In fact, it has since been learned that indirect loss can vary dramatically, and under some circumstances may even prove to be negative implying regional net gains (negative losses). This Chapter provides: a conceptual framework for analyzing indirect loss, a brief description of an algorithm for calculating such loss, a discussion of the range of post disaster outcomes that might be expected, and a brief review of the evidence. These elements are then used to evaluate claims various agencies have made regarding the economic fallout from the World Trade Center attack.