"This research was supported by the United States Department of Homeland Security through the Center for Risk and Economic Analysis of Terrorism Events (CREATE) under grant number 2007-ST-061-000001. However, any opinions, findings, and conclusions or recommendations in this document are those of the authors and do not necessarily reflect views of the United States Department of Homeland Security." December 31, 2007 Estimating the Total Economic Impacts of Terrorist Attacks: Computable General Equilibrium (CGE) Modeling of Resilience and Extended Linkages Adam Rose, et al, University of Southern California [email protected] This research focused on five areas: Advances in computable general equilibrium modeling for application to terrorism: This included conceptual advances in incorporating more features of resilience and in modeling disequilibrium, as well as updating an LA County model and constructing a U.S. model. The research team (Rose, Oladosu and Liao) applied the LA model to a 2-week disruption of water and power systems, with the former published in Risk Analysis. The results indicated losses in excess of $20 billion in terms of business interruption for each case. However, taking full advantage of resilience at the level of the individual firm, market, and regional economy could reduce these losses by 80-90 percent. This is primarily due to the fact that these disruptions are caused by damage to infrastructure but not factories (unlike an earthquake, for example) and are of short duration, so that firms can readily recoup a large portion of lost production since they are unlikely to lose customers on a permanent basis. Advances in modeling and specifying resilience: A definitive paper on the topic was accepted for publication in Environmental Hazards: Human and Social Dimensions that establishes a strong foundation for the analysis of economic resilience. This included an effort to make the definition compatible with definitions in related disciplines and to develop metrics for static (resource re-allocation) and dynamic (recover and reconstruction) aspects of the concept. A related project sponsored by the DHS Integrated Network of Centers on economic resilience was begun with one aspect involving the further refinement of the metrics to the activities of the Transportation Services Security Administration (TSA). A related project sponsored by the DHS Integrated Network of Centers on economic resilience was begun with one aspect involving the further refinement of the metrics to the activities of the Transportation Services Security Administration (TSA). This project, coordinated by Adam Rose, involves other CREATE researchers (Gordon, Richardson, and Moore), as well as researchers from START, PACER, FAZD, and NCAFD. Another aspect of the project relates to the development of a computable general equilibrium model to serve as an organizing framework for the various advances in analyzing and measuring resilience. Analysis of the economic impacts of shutting down the U.S. border to a terrorist or health threat: The research team (Rose, Asay and Wei) used the Regional Econometrics Models (REMI), Inc. Policy Analysis Model to estimate the cost of a complete shutdown of the U.S. borders to imports, retaliation on U.S. exports abroad, migration, and international travel.. The results indicated a loss of GDP of $1.4 trillion on an annual basis, which can be pro-rated for more likely shorter periods of time. An important aspect of this study was an evaluation of the REMI Model for use in terrorism impact analysis. We concluded the model could not be applied without significant refinement, though it should be kept in mind that this would alos apply to most if not all pre-packaged models when applied to extreme scenarios. Development of a module for the RAMCAP-Water decision support tool for DHS: The supplementary module, Regional Economic Impact Model (REIM) is able to quickly estimate the economic impacts of a disruption to water and wastewater systems. It contains a set of default databases that can be manipulated by the user, including substituting user-specified data for the analysis. The program is devised to be user friendly and to be integrated in the overall RAMCAP framework. It is under consideration for circulation to the membership by the American Water Works Association.Rose, et al., Estimating the Total Economic Impacts of Terrorist Attacks Page 2 of 4 Developing a framework for estimating the total economic impact of a terrorist attack: The team advised on the National Bioterrorism Encounter Measures Center bi-annual report to the President. It developed a comprehensive analytical framework for terrorist impact analysis and advised a researchers at Battelle Memorial Institute and a CREATE team using input-output models as to its application. Phase 2 of the project was begun with further refinements of CGE modeling to estimate economic impacts of various bioterrorist threats on a range of targets. Figure 1 illustrates details of the modeling framework for the case of a hypothetical radiological attack on a municipal water system. In the left hand margin of the figure, the various stages in the causal chain of events leading from event to consequences are listed. Across the top margin, the hierarchy of analysis is distinguished, beginning with the water system itself and extending through to the macro level consequences. Note also that the figure distinguishes impacts on businesses and households, as well as including linkages and impacts relating to decontamination/remediation and reconstruction/resettlement. The flow of events in Figure 1 begins with the example of a “radionuclide attack” in the upper left-hand corner, which results in an actual water system contamination. However, as expressed by the dashed line in the figure, suspected water system contamination may cause a shut-down of water services or “do not drink/use” edicts in neighboring areas. Both the real and imagined contamination will lead to direct business interruption losses, with the suspected water system contamination working through the “fear factor.” Only actual water system contamination will result in deaths and injuries, which will then translate into lower effective demand for goods and services, i.e., increased business interruption (BI). Direct effects then cause changes in supply and demand through markets, with prices changing to