A NEW APPROACH TO MODELING THE IMPACT OF DISRUPTIVE EVENTS

What is it about?

This paper develops a new methodology to predict the interregional and interindustry impacts of disruptive events.We model the reactions of economic agents by minimizing the information gain between the pre- and postevent pattern of economic transactions. The resulting nonlinear program reproduces, as it should, the pre-event market equilibrium. The methodology is tested further by means of a comparison of this base scenario with two regional production shock scenarios and two interregional trade shock scenarios. The outcomes show a plausible combination of partially compensating demand, supply, and spatial substitution effects, which justifies the further development, testing, and application of this new approach.

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