The Economic Consequences of a Catastrophic Earthquake Proceedings of a Forum (1992) / Chapter Skim
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3 OVERVIEW OF ECONOMIC RESEARCH ON EARTHQUAKE CONSEQUENCES
3 OVERVIEW OF ECONOMIC RESEARCH ON EARTHQUAKE CONSEQUENCES
Pages 100-111
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From page 100... ...
This overview will be devoted to the often forgotten but essential principles for assessing impacts and will avoid technicalities, serving instead to highlight a broad range of issues which go well beyond those included in conventional damage assessments. The issues presented are the product of several NSF-sponsored projects to develop a guidebook for practitioners conducting damage assessments.
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From page 101... ...
The simple relationships of accounting identities and budget constraints, which govern a regional economy, are the fundamental building blocks from which economic damages are isolated and measured. Income Accounting and Damage Assessment In its simplest form, a regional economy consists of a producing sector, consumers, and government.
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From page 102... ...
102 .~ ECONOMIC CONSEQUENCES OF AN EAR THQUA~ GOVERNMENT -: GOVERNMENT ~ . 1~ HOUSEHOLDS CONSUME ~FIRMS INCOME _: FIGURE 3-1 Flow of payments in a simple, three-sector economy.
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From page 103... ...
Insurance payments, philanthropy, and federal aid will tend to soften regional losses, thereby masking the real effects of a disaster. These possibilities illustrate the pitfalls inherent in loss measurement and further underscore the need for a carefully developed framework.
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From page 104... ...
the Dust Bowl period of the 1930s in the United States, and (23 the Managua earthquake. But even in these instances, the natural event was accompanied by man-made events, the stock market crash and a political revolution, respectively.
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From page 105... ...
In parts of California such as San Jose, the value of real estate is driven mostly by location, with building improvements contributing only a small percentage of the property's overall value. Occasionally, damage assessments incorrectly utilize the total market value of a house in deriving estimates of earthquake losses.
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From page 106... ...
For example, the widespread destruction Hurricane Hugo's upends wrought on the Francis Marion National Forest resulted in untold recreational losses, in addition to lost timber. However, from a mitigation standpoint, the value of destroyed timber and recreation days lost is of little relevance.
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From page 107... ...
Except for cans from economists trying to recalibrate national economic models to accommodate the effects of the earthquake, news reporters were the most frequent inquirers about losses. The following observations about earthquake losses were gleaned from Bay Area press clippings, discussion papers, and interviews with decision makers.
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From page 108... ...
If damages include lost income, they also implicitly include lost tax revenue. Taxes are a function of income and spending.
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From page 109... ...
Some may question whether this latter scenario is overly optimistic. In considering recent events such as the unification of Germany, the New York and Tolyo stock market crashes, and the savings and loan crisis, it can be concluded that the U.S.
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From page 110... ...
There are several obstacles which Inhibit the profession from making inroads, the most intractable of which is its stubborn attachment to outmoded views of financial and economic systems. It almost appears as if the stock market crash of 1929, and the ensuing deep depression, has left an indelible mark on the discipline's orientation.
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From page 111... ...
Those that forecast such `dire consequences anticipate an event that triggers a massive sell-off on stocks and bonds, and that produces a rise in interest rates, declining investment, and lowered aggregate demand, all of which serve to induce a rise in the U.S. unemployment rate.
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