Briefing to The White House


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Economic Analysis for DHS: Microeconomic/Macroeconomic Modeling, Simulation, and Analysis
Washington, D.C.
May 10, 2006

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Briefing to The White House

  1. 1. Economic Analysis for DHS: Microeconomic/Macroeconomic Modeling, Simulation, and Analysis Briefing to The White House Washington, D.C. May 10, 2006 Mark A. Ehlen, Ph.D. Computational Economics Group National Systems Modeling & Analysis Sandia National Laboratories Albuquerque, NM
  2. 2. Real DHS problems drive NISAC economic analyses Natural disasters Financial and other markets Hurricanes: Isabel, Dennis, Ivan, Frances, Impacts of infrastructure disruptions on payment Katrina, Rita, Wilma, Pre-Hurricane Season system functions (ongoing) Analysis (ongoing) Impacts of terrorism on commodity futures Earthquake: Seattle (2005) markets (ongoing) Bio: Impacts of pandemic influenza (Table Top Effects of rolling brownouts on California electric Exercise), smallpox (2006), BSE (2003) power markets (ongoing) Infrastructure disruptions Public policy Impacts of Pacific Northwest port shutdown Asset prioritization (2006) (2003) State grants process (2005) Impacts of rail disruptions on chemical industry (2003) Impacts of U.S. airspace disruptions (2005 Senior Officials Exercise) Impacts of pandemic influenza on critical infrastructure performance (ongoing) Impacts of Soo Lock disruption on regional economies (2006) Value chains Chemical industry (2003 chlorine, 2004 TIH) Goodyear global supply chain (ongoing) Impacts of regional disruptions on food industry (ongoing) Impacts of AI on medical/food industries (forthcoming)
  3. 3. DHS requests are for macroeconomic and microeconomic impacts Macroeconomic Domestic GDP, employment, income Price levels (CPI, producer prices) By industrial sector, state International GNP, changes in growth rates Changes in current account (trade flows) and capital account (financial flows), exchange rates Microeconomic Classes of firms impacted most By industry, firm size, corporate structure, economic preparedness Chemical, food, medical industries changes to production, inventories, shipments, profitability
  4. 4. These requests drive NISAC analytics and tool development Regional/national agent-based microeconomic (N-ABLE) Regional/national econometric macroeconomic (REMI) National system-dynamics macroeconomic (CIPDSS) domain International econometric macro Benefit-cost analysis NISAC and CIPDSS infrastructure analysis year 2003 2004 2004 2005 2006 2007 Infrastructure insight Economic insight
  5. 5. NISAC macroeconomic tools REAcct Input-output and CGE-based methodology for estimating first-order direct/indirect impacts of man- made/natural disasters Generally for short-run, temporary b usiness disruptions REMI 50-state + WDC, 70-industry econometric IO model CGE, Keynesian, historically ob served output/employment/price conditions. Most heavily documented, peer-reviewed macroeconomic model availab le DHS applications: Hurricane Katrina, Rita, MANPAD, pandemic influenza, state grants process World Economy Model REMI, G-Cubed, GEM, or Yale MCU econometric model. ~80% of world GNP, 10-industry DHS applications: Pandemic influenza
  6. 6. Problem-driven tool development: REAcct Purpose Direct economic impacts To automate the process of (1) identifying economic firms directly impacted by disruptions, (2) estimating direct and indirect impacts, and (3) conducting sensitivity analysis of these estimates to changes in disruption assumptions. Data sources County Business Patterns, GDP-by-Industry Data, National Income and Product Accounts, RIMS II multipliers, research. Methodology A combination of input-output and supply chain effects models; future extensions will include techniques that capture on-site and in-transit inventory effects, regional purchase coefficients, and infrastructure disruption effects captured by other NISAC Numb er of small b usinesses infrastructure and economic models. Applications NISAC FAIT tool - programmatically applying REAcct to the network analysis of infrastructure disruption cascades, so as to rank-order critical assets. NISAC MAP tool - as part of asset prioritization for DHS, MAP team is considering REAcct for rapid, first-order estimates of asset economic value.
  7. 7. NISAC microeconomic tools NISAC Agent-Based Laboratory for N-ABLE enterprise model Economics (N-ABLE™) Large-scale, enterprise-firm modeling of supply chains, regional economies, entire nation. Enterprise-level connections to critical infrastructures. Identifies sectors, classes of firms (small/medium/large), regions of the country most vulnerable to infrastructure disruptions. Overall model is designed for simulations running 106 firms on Thunderbird, Sandia’s parallel computing cluster (currently 5th fastest in the An N-ABLE value chain world). Benefit-cost analysis Models investment decision process of government authorities. Compares cost effectiveness of new technologies/strategies against “do-nothing” (baseline) strategy.
  8. 8. Problem-driven tool development: N-ABLE™ Purpose To analyze the impacts of disruptions on regional value chains, specifically: (1) identify the networks of firms impacted directly and indirectly, (2) estimate the intra-firm impacts (e.g., production, inventories) and inter-firm impacts (e.g., sales and shipment levels), and (3) estimate how the collective network can adapt to a disruption and any related policy instruments. Data sources E.g., County Business Patterns, GDP-by-Industry Data, National Income and Product Accounts, private date sources (e.g., Chlorine Institute, Goodyear Tire & Rubber Company, Probe Economics). Methodology (1) Use data-driven, agent-based enterprise model to create synthetic firms that resemble operational and market characteristics of actual firms; (2) model value chains as market-based and non-market-based (e.g., social interactions) networks; (3) analyze networks using network theory metrics (connectedness, betweenness) to estimate brittleness/robustness of value chain; (4) estimate impacts to GDP, employment, income, inventories, shipments, production, over days to months. Network representation of chlorine supply chain (5000 firms)
  9. 9. NISAC is collaborating with Goodyear Tire & Rubber Company to advance its economic analysis capabilities Purpose Analyze the economic impacts of infrastructure disruptions on private companies: 1. create an agent-based economic network representation of firms’ purchasing, shipping, production, distribution, and end- use sale; 2. perform validation of model against existing GY distribution optimization Network representation of Goodyear supply chain techniques; 3. model impacts of various infrastructure disruptions (electric power, transportation) on production, shipping, inventories, costs; 4. assist in new GY disaster planning group formed to mitigate losses due to infrastructure-based supply chain disruptions. Validating analysis of distrib ution centers
  10. 10. An example of how economic analysis fits in NISAC: Katrina Storm data, infrastructure data, economic data Population Physical Electric Telecomm- Transportation/ Petroleum/ Chemical/ effects damage power unications commodities natural gas HAZMAT Economic disruption is superset of all population, physical damage, and infrastructure disruptions Local direct and Regional and national Regional and Small Relocation Financial indirect impacts value chain analysis national macro b usiness impact markets (REAcct) (N-ABLE - experimental) impacts (REMI) analysis analysis analysis 2 pre-reports, Collected and rationalized 10 post-reports, economic results 1 post-post report
  11. 11. Current path: strengthening our capabilities Advancing tools to meet DHS need Need to tune existing models (e.g., REAcct) to more classes of disruptions Need to productionize microeconomic simulation, analysis, and reporting tasks Need more tools that can estimate impacts of short-term (days to weeks to months) disruptions Accessing critical data Need access to more restricted-use infrastructure, commodity flow, and economic data Increasing strategic collaborations “Since Hurricane Katrina, NISAC has significantly improved their capab ility Public: DOT, BEA, BLS, Treasury, FAA, DOS, USDA to provide reports detailing the Private: Firms and associations across industries cascading impact of major disasters Academic: have worked with MIT, Cornell, WSU on the Nation’s infrastructure b ut it does not include a rob ust assessment of the economic impacts.”