Thinking about Imbalances and Rigidities in Post-Catastrophe Economics: An Input-Output Based Proposition

In this paper we focus on the consequences of a major catastrophe for a modern economy, where ‘major’ means that a significant part of the economy’s productive capacity is lost. In the aftermath of the catastrophe, authorities have to address a great number of issues. We show, using basic principles, that input–output methodology offers a flexible set of tools to address three fundamental issues: (1) obtaining a systematic insight in the imbalances that exist in the non-affected area after the catastrophe, (2) determining the nature of these imbalances and the way they affect options in the recovery process, and (3) introducing the elements of a costbenefit analysis in the context of prevention and precautionary policies. Our approach strongly supports the need for extensive contingency planning in the presence of major natural hazards. A numerical example accompanies the various steps of the exercise.