skip to main content
OSTI.GOV title logo U.S. Department of Energy
Office of Scientific and Technical Information

Title: Economic consequences of aviation system disruptions: A reduced-form computable general equilibrium analysis

Abstract

The state of the art approach to economic consequence analysis (ECA) is computable general equilibrium (CGE) modeling. However, such models contain thousands of equations and cannot readily be incorporated into computerized systems used by policy analysts to yield estimates of economic impacts of various types of transportation system failures due to natural hazards, human related attacks or technological accidents. This paper presents a reduced-form approach to simplify the analytical content of CGE models to make them more transparent and enhance their utilization potential. The reduced-form CGE analysis is conducted by first running simulations one hundred times, varying key parameters, such as magnitude of the initial shock, duration, location, remediation, and resilience, according to a Latin Hypercube sampling procedure. Statistical analysis is then applied to the “synthetic data” results in the form of both ordinary least squares and quantile regression. The analysis yields linear equations that are incorporated into a computerized system and utilized along with Monte Carlo simulation methods for propagating uncertainties in economic consequences. Although our demonstration and discussion focuses on aviation system disruptions caused by terrorist attacks, the approach can be applied to a broad range of threat scenarios.

Authors:
; ; ;
Publication Date:
Research Org.:
Pacific Northwest National Lab. (PNNL), Richland, WA (United States)
Sponsoring Org.:
USDOE
OSTI Identifier:
1347836
Report Number(s):
PNNL-SA-115526
Journal ID: ISSN 0965-8564
DOE Contract Number:
AC05-76RL01830
Resource Type:
Journal Article
Resource Relation:
Journal Name: Transportation Research, Part A: Policy and Practice; Journal Volume: 95
Country of Publication:
United States
Language:
English
Subject:
Economic Consequence Analysis; Aviation System Disruptions; Reduced-Form; Computable General Equilibrium (CGE) Modeling; Latin Hypercube Sampling

Citation Formats

Chen, Zhenhua, Rose, Adam Z., Prager, Fynnwin, and Chatterjee, Samrat. Economic consequences of aviation system disruptions: A reduced-form computable general equilibrium analysis. United States: N. p., 2017. Web. doi:10.1016/j.tra.2016.09.027.
Chen, Zhenhua, Rose, Adam Z., Prager, Fynnwin, & Chatterjee, Samrat. Economic consequences of aviation system disruptions: A reduced-form computable general equilibrium analysis. United States. doi:10.1016/j.tra.2016.09.027.
Chen, Zhenhua, Rose, Adam Z., Prager, Fynnwin, and Chatterjee, Samrat. Sun . "Economic consequences of aviation system disruptions: A reduced-form computable general equilibrium analysis". United States. doi:10.1016/j.tra.2016.09.027.
@article{osti_1347836,
title = {Economic consequences of aviation system disruptions: A reduced-form computable general equilibrium analysis},
author = {Chen, Zhenhua and Rose, Adam Z. and Prager, Fynnwin and Chatterjee, Samrat},
abstractNote = {The state of the art approach to economic consequence analysis (ECA) is computable general equilibrium (CGE) modeling. However, such models contain thousands of equations and cannot readily be incorporated into computerized systems used by policy analysts to yield estimates of economic impacts of various types of transportation system failures due to natural hazards, human related attacks or technological accidents. This paper presents a reduced-form approach to simplify the analytical content of CGE models to make them more transparent and enhance their utilization potential. The reduced-form CGE analysis is conducted by first running simulations one hundred times, varying key parameters, such as magnitude of the initial shock, duration, location, remediation, and resilience, according to a Latin Hypercube sampling procedure. Statistical analysis is then applied to the “synthetic data” results in the form of both ordinary least squares and quantile regression. The analysis yields linear equations that are incorporated into a computerized system and utilized along with Monte Carlo simulation methods for propagating uncertainties in economic consequences. Although our demonstration and discussion focuses on aviation system disruptions caused by terrorist attacks, the approach can be applied to a broad range of threat scenarios.},
doi = {10.1016/j.tra.2016.09.027},
journal = {Transportation Research, Part A: Policy and Practice},
number = ,
volume = 95,
place = {United States},
year = {Sun Jan 01 00:00:00 EST 2017},
month = {Sun Jan 01 00:00:00 EST 2017}
}
  • This paper develops a bottom-up approach that focuses on behavioral responses in estimating the total economic impacts of the September 11, 2001, World Trade Center (WTC) attacks. The estimation includes several new features. First, is the collection of data on the relocation of firms displaced by the attack, the major source of resilience in muting the direct impacts of the event. Second, is a new estimate of the major source of impacts off-site -- the ensuing decline of air travel and related tourism in the U.S. due to the social amplification of the fear of terrorism. Third, the estimation ismore » performed for the first time using Computable General Equilibrium (CGE) analysis, including a new approach to reflecting the direct effects of external shocks. This modeling framework has many advantages in this application, such as the ability to include behavioral responses of individual businesses and households, to incorporate features of inherent and adaptive resilience at the level of the individual decision maker and the market, and to gauge quantity and price interaction effects across sectors of the regional and national economies. We find that the total business interruption losses from the WTC attacks on the U.S. economy were only slightly over $100 billion, or less than 1.0% of Gross Domestic Product. The impacts were only a loss of $14 billion of Gross Regional Product for the New York Metropolitan Area.« less
  • The foot and mouth disease (FMD) virus has high agro-terrorism potential because it is contagious, can be easily transmitted via inanimate objects and can be spread by wind. An outbreak of FMD in developed countries results in massive slaughtering of animals (for disease control) and disruptions in meat supply chains and trade, with potentially large economic losses. Although the United States has been FMD-free since 1929, the potential of FMD as a deliberate terrorist weapon calls for estimates of the physical and economic damage that could result from an outbreak. This paper estimates the economic impacts of three alternative scenariosmore » of potential FMD attacks using a computable general equilibrium (CGE) model of the US economy. The three scenarios range from a small outbreak successfully contained within a state to a large multi-state attack resulting in slaughtering of 30 percent of the national livestock. Overall, the value of total output losses in our simulations range between $37 billion (0.15% of 2006 baseline economic output) and $228 billion (0.92%). Major impacts stem from the supply constraint on livestock due to massive animal slaughtering. As expected, the economic losses are heavily concentrated in agriculture and food manufacturing sectors, with losses ranging from $23 billion to $61 billion in the two industries.« less
  • While computable general equilibrium (CGE) models are a well-established tool in economic analyses, it is often difficult to disentangle the effects of policies of interest from that of the assumptions made regarding the underlying calibration data and model parameters. To characterize the behavior of a CGE model of carbon output with respect to two of these assumptions, we perform a large-scale Monte Carlo experiment to examine its sensitivity to base year calibration data and elasticity of substitution parameters in the absence of a policy change. By examining a variety of output variables at different levels of economic and geographic aggregation,more » we assess how these forms of uncertainty impact the conclusions that can be drawn from the model simulations. We find greater sensitivity to uncertainty in the elasticity of substitution parameters than to uncertainty in the base-year data as the projection period increases. While many model simulations were conducted to generate large output samples, we find that few are required to capture the mean model response of the variables tested. However, characterizing standard errors and empirical probability distribution functions is not possible without a large number of simulations.« less
  • The paper analyzes the impact of oil revenues on the agriculture-based economy of Cameroon, a significant (100,000 barrels per day) but temporary (20 years of reserves) oil producer. It has been observed in other oil-exporting countries that when oil revenues are spent domestically, an appreciation of the real exchange rate results, leading to a shift in the production mix away from tradeable sectors in favor of nontradeables. Using a multisectoral, general-equilibrium model of Cameroon, the authors show that while this effect occurs in the aggregate, some tradeable sectors actually expand.
  • Economists use computable general equilibrium (CGE) models to assess how economies react and self-organize after changes in policies, technology, and other exogenous shocks. CGE models are equation-based, empirically calibrated, and inspired by Neoclassical economic theory. The focus of this work was to validate the National Infrastructure Simulation and Analysis Center (NISAC) CGE model and apply it to the problem of assessing the economic impacts of severe events. We used the 2012 Hurricane Sandy event as our validation case. In particular, this work first introduces the model and then describes the validation approach and the empirical data available for studying themore » event of focus. Shocks to the model are then formalized and applied. Finally, model results and limitations are presented and discussed, pointing out both the model degree of accuracy and the assessed total damage caused by Hurricane Sandy.« less